A new purchase of life insurance is considered a replacement when as a result of the new purchase, in the three months (12 months for internal replacement) after or prior to the issuance of the new contract, an existing life insurance contract is:
- rescinded, lapsed, or surrendered
- changed to paid-up insurance, or continued as extended term insurance or under an automatic premium loan
- changed in any way which results in a reduction of benefits, or
- changed so that cash value in excess of 50% of the tabular cash value (cash value of the base policy) of any contract of life insurance is released or is subject to substantial borrowing in the form of a single loan or under a schedule of borrowing over a period of time.
However, the following transactions are not considered to be replacements:
- the new contract of life insurance is considered to be a continuation of the original policy because of a policy change, or the client is exercising a contractual privilege as specified under the existing contract (i.e., term conversion), or
- the contract to be replaced is an annuity.
Advisor's Responsibility
With respect to external and internal replacement, an advisor shall not induce a policy owner to replace an existing contract of life insurance. Where it appears that, due to a change in circumstances, an existing contract of life insurance should be amended or changed to another contract of life insurance, the advisor shall attempt to have the existing contract amended or changed by the client’s existing insurer in order that any values, credits or privileges in the existing contract may be transferred to the amended or changed contract of life insurance, unless such amendment or change by the existing insurer would be detrimental to the best interests of the policyowner.
After the completion of a needs analysis, if the replacement of a contract of life insurance is intended, the advisor must provide the client with full and complete disclosure. Such disclosure must include information about the existing product and the proposed product to allow the client to make an informed decision. The disclosure must always be completed prior to the completion of the new application.
It is your responsibility to conduct your business activities in accordance with the highest ethical standards and, in particular, comply with the requirements prescribed by the regulator in the client’s jurisdiction, as they relate to the replacement of life insurance contracts.
Completion of the Required Forms
LIRD
The Life Insurance Replacement Declaration (LIRD) provides guidance on certain disclosure requirements and is designed with the intention to advise clients of the importance of obtaining information respecting their existing insurance and proposed insurance before they decide to replace it. The LIRD must be provided to the client and a signed copy kept by the advisor.
In jurisdictions where the LIRD is required, Standard Life expect to receive a copy of the completed and signed LIRD form with the new application intending to replace an existing insurance policy - whether with Standard Life or another carrier.
Replacement Form
In certain jurisdictions, the disclosure must be in a form prescribed by regulations, such as the completion of a Replacement Form.
The Replacement form is designed to provide the client with information that he/she might find helpful in deciding whether to change his/her current life insurance. The Form compares the client’s current coverage with the proposed coverage. In jurisdictions where a prescribed Replacement Form is required, the Form must be fully and accurately completed to allow the client to make an informed decision, and must always be completed prior to the completion of the new application
The advisor is personally responsible for forwarding a copy of the fully completed Replacement Form as presented to and signed by the client, to every insurer whose contract of life insurance is to be replaced. A copy must also be forwarded to Standard Life within the period prescribed by regulation.
The completion of the Replacement Form is the advisor’s responsibility. The form must be completed by the advisor and signed by both the advisor and the client.
Québec advisors: During the training period of a Trainee, the Training Supervisor must also sign the Replacement Form as proof of supervision of the Trainee’s activities. The Replacement Form must be sent to the existing insurer within five (5) working days.
For Internal Replacement, we will continue to require a copy of the LIRD / Replacement Form as presented and signed by the client.
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