State RegulationsTX specificDifficulty 2/5
A Texas applicant exercises a nonforfeiture option on an existing policy, converting it to reduced paid-up insurance, and at the same time buys a new life policy. Is this a replacement?
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Answer & full 3-part explanation (select an option above, or peek)
Why A is correct
Under TIC 1114.002, a replacement includes a transaction in which existing coverage is converted to reduced paid-up insurance or continued as extended term insurance, or is otherwise reduced in value through the use of nonforfeiture benefits or other policy values, when that occurs in connection with purchasing the new contract. Practically, a Texas agent who helps a client cash in the value of an old contract to buy a new one has a replacement on his hands even though the old policy never lapsed.
Why the other options are wrong
- B) is wrong because the definition is not limited to surrender or lapse; a reduction in value is enough.
- C) is wrong because the use of nonforfeiture benefits is one of the enumerated ways a replacement arises.
- D) is wrong because reduced paid-up insurance is still in-force life insurance, just at a lower amount with no further premiums.
Memory hook
Reduced, borrowed or surrendered, it is still replacement.