Question

Which of the following is NOT a situation that involves life insurance policy replacement? a Depleting cash value in an existing policy and applying for a new one b Converting a term policy to a permanent policy with the same insurer c Taking a reduced paid up option for a policy and applying for a new one d Terminating an existing policy and applying for one with better coverage

Answer 1

Converting a term policy to a permanent policy with the same insurer is not considered a life insurance policy replacement. Replacements involve terminating or materially altering an existing policy in favor of a new one, while a conversion modifies the type of coverage within the same policy.

Step-by-step explanation:

Life insurance policy replacement involves discontinuing one policy and initiating a new one that often provides similar or improved benefits. However, not every change to an existing policy is considered a replacement. For instance, converting a term policy to a permanent policy with the same insurer does not involve replacing the policy but rather modifying it to offer a different type of coverage.

Situations Involving Life Insurance Policy Replacement

• Depleting cash value in an existing policy and applying for a new one
• Taking a reduced paid up option for a policy and applying for a new one
• Terminating an existing policy and applying for one with better coverage

Among the options provided, converting a term policy to a permanent policy with the same insurer (option b) is NOT a situation that involves life insurance policy replacement.

Answer 2

The situation that does NOT involve life insurance policy replacement is:

C. Taking a reduced paid-up option for a policy and applying for a new one.

Here's a step-wise explanation:

1. Depleting cash value in an existing policy and applying for a new one:

- This is a situation where you have an existing life insurance policy, but you're considering replacing it with a new one, possibly due to dissatisfaction with the existing policy's performance, features, or cost.

2. Converting a term policy to a permanent policy with the same insurer:

- This situation involves changing the type of policy (from term to permanent) with the same insurance company. It's a form of policy modification, not replacement.

3. Terminating an existing policy and applying for one with better coverage:

- This scenario entails discontinuing an existing life insurance policy and seeking a new one with improved coverage, possibly because your needs have changed. It clearly involves policy replacement.

4. Taking a reduced paid-up option for a policy and applying for a new one:

- This is not a typical situation related to policy replacement. "Reduced paid-up" means you're reducing the coverage of an existing policy to a lower amount without acquiring a new one. It's a different action from replacing an old policy with a new one.

So, option (c) is the correct choice as it does not directly involve life insurance policy replacement; instead, it involves modifying an existing policy's coverage without acquiring a new one.