State RegulationsCA specific✓ Verified · outline & fact-checked · Sep 2026Difficulty 2/5
A producer recommends replacing a client's existing life insurance policy with a new one. Which of the following is a primary drawback of replacement that California's replacement rules are designed to address?
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Answer & full 3-part explanation (select an option above, or peek)
Why A is correct
Replacement restarts the protective clocks: a new contestability period (two years in California), a new suicide clause, and often new surrender charges in the existing policy that is being surrendered. California's replacement rules (Sections 10509-10509.09) require written notices and a signed acknowledgment before the new policy is issued so the applicant understands these consequences before churning coverage. Agents who replace policies without compliance face administrative penalties.
Why the other options are wrong
- B) A new policy's premium is not automatically lower; it is priced at current age, health, and rates and may well be higher.
- C) Replacement is not always taxable — a qualified Section 1035 exchange is tax-free — but surrendering and rebuying can trigger gain.
- D) The suicide clause does not extend backward; it restarts forward from the new policy's issue date.
Memory hook
Replacement restarts the clocks: new contestability, new surrender charges, new suicide period. Know before you churn.