Indiana State Life and Health Insurance Practice Exam

How is life insurance replacement defined in Indiana?

1. A transaction where coverage on an existing policy is increased

2. A transaction where group life coverage is converted to an individual policy

3. A transaction in which a new policy is bought and an old policy is terminated

4. A transaction in which a policyowner reinstates a lapsed policy

The correct answer is: A transaction in which a new policy is bought and an old policy is terminated

In Indiana, the definition of life insurance replacement involves a situation where a new insurance policy is purchased and an existing policy is terminated. This means that when an individual decides to replace their current life insurance coverage with a new policy, it usually entails the discontinuation of the old policy, which can be for various reasons such as better terms, lower premiums, or more suitable coverage options. This concept is important for both consumers and insurance agents, as it often comes with regulatory requirements designed to protect policyholders from unintentionally losing valuable benefits or incurring additional costs associated with a new policy. Replacement practices are closely scrutinized to ensure that the consumer is fully informed of the implications of such a transaction. The other options describe scenarios that do not meet the definition of replacement as outlined in Indiana law. For example, simply increasing coverage on an existing policy does not involve replacing it with a new one. Similarly, converting group life insurance to an individual policy or reinstating a lapsed policy does not entail terminating the old policy in favor of a completely new one. Therefore, the definition tied to the act of purchasing a new policy while discontinuing an old one is the most accurate and aligns with the regulatory guidelines surrounding life insurance in Indiana.