Replacing a life policy in Florida: the forms you should be handed

Replacing one life insurance policy with another is sometimes clearly right — health has improved, the original was badly built, the need changed. It is also the transaction where the agent’s interest and the client’s interest diverge most sharply, which is why Florida regulates the paperwork so specifically.

Knowing which forms exist is the most practical protection available to you, because a replacement being handled properly and one being pushed through look very similar from the outside — until you ask for the paperwork.

What counts as a replacement

Broader than most people assume. Under Fla. Admin. Code R. 69O-151.002, replacement covers not only lapsing or surrendering an existing policy, but also converting it to reduced paid-up or extended term insurance, reducing its benefits, reissuing it with a reduced cash value, and pledging or borrowing against it in an aggregate amount exceeding 25 percent of its loan value.

That last one surprises people. A large policy loan taken to fund a new policy is a replacement in the regulatory sense, with the disclosure obligations that follow.

What the agent must do

Under R. 69B-151.005 and .006, every life application must carry a signed applicant statement saying whether the new insurance will replace existing life insurance, and a signed agent statement saying whether the agent knows replacement is or may be involved.

Where replacement is involved, the agent must present Form OIR-B2-312, Notice to Applicant Regarding Replacement of Life Insurance, not later than at the time of taking the application. It must be signed by both the applicant and the agent, a copy must be left with you, and copies of all sales proposals must be left with you and submitted to the replacing insurer.

“Not later than at the time of taking the application” is the operative phrase. This is not a document that turns up with the policy weeks later. If you signed an application to replace coverage and never saw that form, something was skipped.

What the companies must do — including the one you already have

This is the provision most consumers have never heard of, and it is the most useful.

• The replacing insurer sends the notice to your existing insurer immediately on receipt, and on request sends you Form OIR-B2-313, a comparative information form, within five working days of receiving the application or by policy issue, whichever is sooner.
• The existing insurer must, within 10 days of receiving that notice, furnish you on request with a Form OIR-B2-313 for your existing coverage.

In plain terms: you can require the company you are about to leave to give you a written summary of what you already have. That is a comparison prepared by a party with no interest in the new sale. If you are being replaced out of a policy, ask for it.

Three situations where notice is not required

Fla. Stat. § 627.4605 lists them: exercising a contractual change or conversion privilege with the same insurer; replacement by the same insurer under a program filed with and approved by the Office of Insurance Regulation; and term conversion among corporate affiliates.

Annuities run on a different track

Worth knowing if you hold both. Under R. 69O-151.004, the life replacement rules exempt variable life, variable annuities, and “transactions involving annuity contracts which are governed by Rule 69B-162.011.” Annuity replacements go through the suitability regime under Fla. Stat. § 627.4554 and Form DFS-H1-1981, the Disclosure and Comparison of Annuity Contracts — not the life forms described above.

Churning: same-company replacements

Where the values in an existing policy are used to buy another policy from the same insurer, Fla. Admin. Code R. 69O-151.202 requires the insurer to maintain written anti-churning procedures and to deliver Form OIR-D0-1180, the Policy Disclosure Form.

Churning is defined at Fla. Stat. § 626.9541(1)(aa) and, like twisting, is a first-degree misdemeanor under § 626.9521(3)(a) in addition to the administrative penalties. Florida treats this as more than a paperwork failure.

Questions worth asking before you sign

• What is the new contestability period, and the new suicide exclusion period? Both typically restart on a new policy. Replacing a seven-year-old policy can hand your family a fresh two-year contestability window.
• Am I older and possibly in different health than when the original was issued — and how does that change the rating?
• What surrender charges or cash value do I lose on the way out?
• If the new policy is not issued at the rate class illustrated, what happens? (Under § 626.99(5)(j), if a replacement would be issued in other than the most favorable class, the replacing insurer owes you disclosure and a rate comparison.)
• Can I keep both? Sometimes the answer is yes and nobody asked.

If the replacement genuinely serves you, it will survive these questions comfortably. If asking them causes friction, that is information too.