In Indiana, the act of substituting an existing life insurance policy or annuity contract with a new one is carefully defined and regulated. This action, often referred to as a replacement (noun), occurs when a new policy is purchased and, as a result, an existing policy is lapsed, surrendered, forfeited, assigned to the replacing insurer, converted to reduced paid-up insurance, continued as extended term insurance, or reissued with a reduction in cash value. This definition ensures that consumers are protected when considering such a transaction. As an example, if an individual purchases a new life insurance policy and subsequently cancels their older policy to pay for the new one, that constitutes a replacement.
The scrutiny surrounding this practice stems from the potential for consumers to be misled or disadvantaged through unsuitable policy changes. The regulatory framework aims to ensure that policyholders have adequate information to make informed decisions, understanding both the advantages and disadvantages of the proposed change. Historically, this area has been susceptible to abuse, with agents potentially prioritizing commissions over the client’s best interests. Therefore, stringent regulations and disclosure requirements are in place to safeguard consumers against unnecessary or harmful policy alterations.
