State RegulationsIL specificDifficulty 1/5
In Illinois, a new life insurance application is a "replacement" when the purchase of the new policy results in what?
Select an option to reveal the answer and the full 3-part explanation — free, no signup.
Answer & full 3-part explanation (select an option above, or peek)
Why C is correct
Under 50 Ill. Adm. Code 917, replacement is defined by its effect on the existing policy: a transaction in which new life insurance is purchased and, as a consequence, the existing policy is lapsed, surrendered, forfeited, converted to reduced paid-up or extended-term coverage, or its values are borrowed against or used to fund the new purchase. Defining by effect captures transactions where the policyowner unknowingly gives up valuable contractual features in exchange for new coverage.
Why the other options are wrong
- A) Adding coverage while leaving the existing policy completely untouched does not disturb the existing contract and is not a replacement.
- B) An application to the existing insurer involving a contractual change or an exercised privilege is excluded from the definition.
- D) The source of the new policy's premium is irrelevant; only the consequence for the existing policy matters.
Memory hook
Replacement is what happens to the old policy, not what happens to the new one.