Texas Life Agent Practice Exam

What determines if the life insurance replacement rule applies?

1. The type of existing insurance policy

2. Whether the policy is primary or secondary

3. The age of the insurance policy

4. The financial condition of the policyholder

The correct answer is: The type of existing insurance policy

The life insurance replacement rule primarily applies when there is a change in coverage that involves an existing insurance policy being replaced by a new one. This rule exists to protect consumers from potential disadvantages that could arise from replacing their current policy. The determination of whether the replacement rule applies is based on the type of existing insurance policy. For instance, if the existing policy is a term life insurance, whole life insurance, or universal life insurance, the implications and requirements of the replacement rule may differ, as each type of policy has distinct features and benefits. When a new policy is introduced to replace one that is considered suitable, the insurer must ensure the policyholder understands the implications of that change, such as the loss of benefits, additional costs, or waiting periods. In this context, the other factors listed, while they may be relevant in assessing the overall financial condition or suitability of a policy, do not specifically dictate the application of the replacement rule. The focus remains on the characteristics of the existing insurance policy to determine whether the replacement protections are warranted.