Texas Life Agent Practice Exam

The Life Insurance Replacement Rule does not apply to which of the following?

1. Individual Life insurance

2. Group Life insurance

3. Credit Life insurance

4. Universal Life insurance

The correct answer is: Credit Life insurance

The Life Insurance Replacement Rule is designed to protect consumers from unnecessary replacement of their current life insurance policies, ensuring they are fully informed about the consequences of replacing one policy with another. Under this rule, specific types of insurance, particularly individual policies and customizable products, are scrutinized more thoroughly. Credit Life insurance is typically structured to pay off a borrower's debt in the event of their death and is often offered directly by lenders as part of the loan agreement. Because it is not an individually purchased policy with the same complexities as individual life insurance, the regulations concerning replacement do not generally apply. This means consumers do not need the same level of scrutiny when replacing credit life insurance since it does not accumulate cash value or provide long-term benefits in the same way individual policies do. Consequently, group life insurance, individual life insurance, and universal life insurance all involve more personal investment and longer-term commitments, making them subject to the replacement rule to safeguard consumers’ interests. In contrast, credit life insurance is less likely to require such protections due to its specific nature and purpose.