Texas Life Agent Practice Exam

Which of the following is NOT true regarding the replacement of life insurance policies?

1. It is unlawful to replace policies

2. Disclosure must be provided to the policyholder

3. Existing policies must be reviewed for replacement

4. Replacement can result in loss of benefits

The correct answer is: It is unlawful to replace policies

Replacement of life insurance policies refers to the process where a new policy is issued to a policyholder that involves terminating or changing an existing policy. It is essential to understand the regulations surrounding this process. The assertion that it is unlawful to replace policies is not accurate. Replacement is a legal practice, but it is governed by specific rules and regulations to protect consumers. Insurers and agents must adhere to these guidelines to ensure that the policyholder understands the implications of replacing a policy, making it a lawful activity provided that proper procedures, disclosures, and evaluations are followed. On the other hand, the requirement for disclosure to the policyholder is crucial. This ensures that individuals are fully informed about the potential impacts of replacing their policies, such as differences in coverage, cost, and benefits. Moreover, reviewing existing policies before replacement is a necessary practice. Agents are obligated to assess the current policies to ensure that the replacement is in the best interest of the policyholder, taking into account coverage and benefits. It's also true that replacing a policy can result in the loss of benefits. New policies may come with different terms, and any accumulated benefits from the existing policy may be lost if the replacement is not managed properly. In summary, replacement of life insurance policies is a regulated practice