Colorado Life Producer License Practice Test

What must a company do before beginning the process of replacing an existing life insurance policy?

1. File a formal report

2. Notify the current insurer

3. Provide a replacement notice

4. Wait 30 days after application

The correct answer is: Provide a replacement notice

Before starting the replacement of an existing life insurance policy, a company is required to provide a replacement notice to the policyholder. This notice serves to inform the policyholder about the implications of replacing their current policy with a new one. It is a crucial step, as it protects consumers by ensuring they understand the features, benefits, and potential disadvantages of the new policy compared to their existing coverage. The replacement notice must include specific information, such as the reasons for replacement and acknowledgments from both the agent and the policyholder. It aims to prevent policyholders from making uninformed decisions that could lead to financial consequences, such as lapses in coverage or loss of benefits. Timely notification and transparency are vital in the insurance industry, ensuring that customers are fully aware of their options and the potential impact of replacing their current policy. This requirement addresses the ethical responsibilities of insurance agents and companies in their dealings with consumers.