Policy or contract replacement duties

Policy or Contract Replacement Duties

A replacement occurs when, because of a new sale, an existing life insurance policy or annuity contract is lapsed, surrendered, converted to reduced paid-up or extended term coverage, reduced in value, or otherwise terminated -- whether or not the agent involved in the new sale is the one who caused it. Replacement is treated as a heightened-duty transaction because the consumer usually loses something -- a surrender charge, an incontestability or suicide-clause clock that restarts, or a benefit only the old contract carried -- and an agent who is paid a new commission has an obvious incentive to recommend replacing rather than keeping a contract in force.

The general duty: consider the whole transaction

As a matter of standard practice across life and annuity replacement rules, an agent recommending a replacement must evaluate the transaction as a whole, not just the new contract's features in isolation, and must give the consumer a comparison and a right to reconsider (a free-look period) before the transaction is final.

Florida's annuity-specific replacement duty

For annuities, Florida's suitability statute both defines replacement and requires the agent to evaluate one specifically because of it.

"Replacement" is defined broadly: a transaction is a replacement if the agent knew or should have known that, because of it, an existing annuity or other insurance policy would be lapsed, surrendered, converted to reduced paid-up or extended term coverage, amended to reduce benefits, reissued with a reduced cash value, or used in a financed purchase.

Where a recommendation involves an exchange or replacement of an annuity, the agent must consider the whole transaction, including whether: the consumer will incur a surrender charge, start a new surrender period, or lose existing benefits (such as a death or living benefit) or face increased fees; whether the new product would substantially benefit the consumer over the life of the product compared to the one being replaced; and whether the consumer has already exchanged or replaced an annuity within the preceding 60 months.

This sits inside Florida's broader annuity suitability framework: the agent must have a reasonable basis, built from the consumer's profile information (age, income, financial situation, existing holdings, liquidity needs, risk tolerance, and more), to believe any recommended annuity -- replacement or not -- actually addresses that consumer's financial situation, insurance needs, and financial objectives.