Replacement notices are used to inform about what?

• A. The replacement of an existing policy with a new one only
• B. The replacement of an existing policy with a new one and to ensure suitability
• C. Replacement notices are optional and have no regulatory requirement
• D. Replacement notices are used to increase premium payments

Answer: (B)

Replacement notices are about informing the client when an existing life insurance policy is being replaced with a new one, and they also ensure the replacement is suitable for the client’s needs. When a replacement is involved, regulators require this notice to explain what is being replaced, why, and how the new policy compares to the old one in terms of benefits, premiums, and potential surrender charges or lapse risk. This helps the owner understand the financial impact and make an informed decision, while also ensuring the adviser is reviewing suitability rather than pushing an unnecessary or inappropriate swap. It’s not optional and it isn’t about simply increasing premiums; the notice addresses both the replacement and the need to assess whether the new policy serves the client’s best interests.