Under TIC 1114.002, which of the following transactions is a "replacement" of an existing life insurance policy?
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Answer & full 3-part explanation (select an option above, or peek)
Why A is correct
TIC 1114.002 defines a replacement as a transaction in which a new policy or contract is purchased and it is known or should be known to the proposing agent (or to the proposing insurer if there is no agent) that, because of the transaction, an existing policy has been or is to be lapsed, forfeited, surrendered or partially surrendered, assigned to the replacing insurer, otherwise terminated, converted to reduced paid-up insurance, continued as extended term insurance, reduced in value by the use of nonforfeiture benefits or other policy values, reissued with a reduction in cash value, or used in a financed purchase. Surrendering the old policy and applying its cash value to carry the new one satisfies that definition on two counts, so the full replacement procedure applies: the signed applicant and agent statements must accompany the application, and the buyer's guide and the prescribed comparison disclosure must be presented to and left with the applicant.
Why the other options are wrong
- B) No existing policy is being displaced, so the transaction cannot be a replacement under TIC 1114.002.
- C) An existing policy that stays in force at its full face amount, with premiums paid from current income, is untouched by the transaction and is not replaced.
- D) A clerical reissue that changes no benefit, no coverage term, and no cash value falls outside the TIC 1114.002 definition.
Memory hook
New purchase plus old policy cashed in or cut down equals a replacement.