A Pennsylvania producer proposes replacing a client's existing life policy with a new one. Under Pennsylvania's replacement rules, what is the producer expected to do?
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Answer & full 3-part explanation (select an option above, or peek)
Why A is correct
When a transaction involves replacement, 40 P.S. § 625 and the procedures in 31 Pa. Code Ch. 81 require the producer to determine whether replacement is involved and, if so, to give the applicant a notice regarding replacement and comparison information about the existing and proposed coverage, so the applicant can make an informed decision. The procedures exist because replacements often disadvantage policyholders who lose accumulated value. Skipping the notice and comparison duties is a violation the Pennsylvania Insurance Department can sanction, and the insurer's own replacement obligations presuppose the producer's honest identification of the transaction.
Why the other options are wrong
- B) Silence is the exact opposite of the required procedure; the existing insurer must be able to see the transaction and the applicant must see the comparison.
- C) Avoiding the comparison conversation defeats the applicant's informed choice and violates the producer's replacement duties.
- D) The notice and comparison requirements cannot be waived by the applicant; they are regulatory duties imposed on the producer and insurer.
Memory hook
See it, say it, compare it: replacement duties in Pennsylvania start with honest identification.