Chapter 8. Life Insurance and Annuities - Policy Replacement and Cancellation

cancellation

ending an in-force insurance policy before its expiration date (by insurer or insured).

home office

the headquarters of an insurance company.

insurance code

state laws that govern how insurance is sold and solicited.

rescission

retroactive cancellation of a policy by returning it to the insurer.

surrender

early termination of a policy by the policyowner.

return policy for full refund

policyowner may return a new policy for a full refund of premiums paid within the specified period — no questions asked.

rescission

treats the policy as if it never existed; starts when the contract is received and signed by the owner.

refund deadline after rescission

insurer must refund premiums within 30 days of being notified.

cancellation rule for seniors (60+)

right to cancel within 30 days for a full refund; must include a 12-point bold print notice.

notice for age 60+

policy must state cancellation rights in bold, 12-point font with 1-inch space border or sticker.

free-look period for under 60

must be at least 10 days, up to 30; 30-day minimum if it’s a replacement policy.

investment rule during free-look period

variable annuity premiums must be in fixed-income or money-market funds, unless otherwise requested.

policies under $10,000 face value

must allow cancellation within 10–30 days; policy becomes void from the beginning if returned.

notice of right to cancel

all life insurance policies must include a written cancellation notice with a return period of 10–30 days.

refund after cancellation

insurer must refund all premiums and policy fees within 30 days of notice.

replacement (definition)

when a new life insurance or annuity replaces an old one (via lapse, surrender, reissue, conversion, or reduction in value).

replacing insurer vs. existing insurer

replacing insurer issues the new policy; existing insurer issued the policy being replaced.

conservation

existing insurer's attempt to dissuade policy replacement (not including routine reminders or reinstatement offers).

notice regarding replacement

must be signed by applicant & producer; copy left with applicant.

required info from applicant

get list of all current policies being replaced: policy numbers & insurer names.

documents to submit to insurer

copy of the replacement notice and signed statements on whether replacement is involved.

replacing insurer must:

• get list of policies being replaced

• notify existing insurer

• provide unconditional refund notice

• retain records for 3 years

disclosure delivery timing

must be presented as soon as replacement is suspected, even if policy is mailed later.

sample disclosure key message

urges applicant to compare old vs. new benefits and consult their existing insurer before replacing.

replacement rules do not apply to

• credit life

• group life or annuities

• changes with same insurer

• new policies from same insurer

penalties for agents

• $1,000 first offense

• $5,000–$50,000 for later offenses

penalties for insurers

• $10,000 first offense

• $30,000–$300,000 for later offenses