Which transaction qualifies as replacement?

Which transaction qualifies as replacement?

• A. A policy lapse due to nonpayment.
• B. A transaction in which a new life insurance policy replaces an old one.
• C. A routine annual policy renewal.
• D. A policy loan against the cash value.

Answer: (B)

Replacement happens when a new policy is issued to take the place of an existing contract, ending or reissuing the old coverage as part of the purchase. The described transaction fits this exactly: a new life insurance policy is being issued to replace an old one, so the old policy is effectively being replaced by the new policy. The other scenarios don’t involve replacing an existing contract with a new one—lapse due to nonpayment ends the policy, renewal just continues the same policy, and a loan against the cash value uses the policy as collateral without replacing it. This is why the described transaction is the replacement.

Replacement happens when a new policy is issued to take the place of an existing contract, ending or reissuing the old coverage as part of the purchase. The described transaction fits this exactly: a new life insurance policy is being issued to replace an old one, so the old policy is effectively being replaced by the new policy. The other scenarios don’t involve replacing an existing contract with a new one—lapse due to nonpayment ends the policy, renewal just continues the same policy, and a loan against the cash value uses the policy as collateral without replacing it. This is why the described transaction is the replacement.