Florida Replacement Rule

The purpose of the replacement rule is:

• regulate the activities of insurers and agents with regards to replacement of insurance policies
• to protect the interest of policy-owners by establishing minimum standards of conduct by
  • reducing the opportunity for misrepresentation and incomplete disclosures
  • ensuring the policy-owner receives information with which a competent decision can be made

Definition of replacement *****

When it is known or should be known to a proposing agent or insurer that a policy is:

• lapsed, forfeited, surrendered, or otherwise terminated
• converted to
  • reduced paid up
  • extended term or
  • reduced in value by the use of nonforfeiture benefits or other policy loans
• amended as to effect either
  • a reduction in benefits, or
  • a reduction in the term for which coverage otherwise would have been extended
• reissued with any reduction in cash values, or
• pledged as collateral or subject to borrowing more than 25% of the loan value

These rules apply to life insurance and annuities.

Exemptions

• industrial insurance
• group, franchise and individual credit life insurance
• group life and life insurance in a qualified plan (tax deductible plans)
• a policy where the existing company and the replacing company are the same where a conversion is taking place
• existing life insurance that is non-convertible and that will expire in five years and can not be renewed (unless this particular term has cash values)
• proposed life insurance replacing existing life insurance issued under a conditional or binding receipt by the same company (hasn't been issued yet)
• variable life or variable annuities which the death benefits & cash values vary (they do vary)

Duties of the Agent *****

An agent must submit to the insurer with or as a part of each application:

1. a signed statement by the applicant as to whether the new insurance is replacing an existing policy
2. a signed statement by the agent as to whether or not the agent knows a replacement is or may be involved

Where a replacement is or may be involved, the agent must do the following: *****

1. have the applicant sign a Notice to Applicant Regarding Replacement of Life Insurance (must be signed by the agent and left with the applicant)
2. leave original or copies of all sales proposals
3. submit to the replacing insurer, with the application, a copy of Notice to Applicant Regarding Replacement of Life Insurance and all sales proposals used in the presentation

Duties of Replacing Insurer *****

1. require from the agent with the application, a copy of Notice to Applicant Regarding Replacement of Life Insurance and all sales proposals used in the presentation
2. within five days, from the date of receiving the application and upon request, sent to the applicant a completed Comparative Information Form
3. Notify the existing insurer by sending a copy of the Notice to Applicant Regarding Replacement of Life Insurance
4. provide the buyer with a Buyer's Guide and Policy Summary before accepting the premium (unless they provide for at least a 14 free look)
5. maintain copies of the Notice to Applicant Regarding Replacement of Life Insurance, Comparative Information Form and all sales proposals used for at least three years.

Duties of the existing insurer

Each existing insurer being replaced must do the following:

1. within ten days, upon request, send to the applicant a Comparative Information Form
2. maintain a file containing copies of Notice to Applicant Regarding Replacement of Life Insurance and the Comparative Information Form
3. held for three years

Surrender recommendations

Anyone who is exempt from licensure who recommends the surrender of an annuity or life insurance policy containing cash value and does not recommend that the proceeds be used to buy another annuity or life insurance policy (no replacement, just cashing it in), must, before executing the surrender, provide to the DFS a form containing information relating to the surrender. This information must include:

• the amount of the surrender charge
• the loss of any minimum interest rate guarantees
• the amount of tax consequences resulting from the transaction
• the amount of forfeited death benefits
• the value of any investment performance guarantees as the result of this transaction

All of this is designed to protect the applicant. Please know, especially, the replacing agent's and replacing company's responsibility.