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19.3.4 Notice of Replacement

The Florida Replacement Rule sets forth the requirements and procedures to be followed by insurance companies and insurance producers when a proposal is being made to a client who plans to replace existing life insurance contract(s) with the proposed new life insurance policy.

Helpful Hint

Any replacement policies must be advantageous to the client; otherwise, illegal activities such as churning may occur.

The replacement of existing life insurance policies with new contracts of life insurance requires a written comparison and summary statement at the policyholder's request.

The Florida manual defines "Replacement" in this context as a transaction in which new life insurance is to be purchased and it is known or should be known to the proposing agent or to the proposing insurance company if there is no agent that by reason of such transaction existing life insurance has been or is to be:


Churning is defined as the practice by which policy values in an existing life insurance policy or annuity contract are used to purchase another policy or contract with that same insurer for the purpose of earning additional premiums or commissions under any of the following conditions:


Twisting is the practice of inducing a policyowner with one company to lapse, forfeit or surrender a life insurance policy for the purpose of taking out a policy in another company.

Twisting is in violation of the Code of Ethics of the Florida Association of insurance and Financial Advisors and Florida law. The practice of "stripping" policies of their cash value to make "other investments" falls in the category of twisting.

Make sure you have a full understanding of what churning is and the difference between churning and twisting.

An agent who exhibits fraudulent conduct in committing the practices of twisting or churning can be charged with a first degree misdemeanor if he/she displays fraudulent conduct and may be subject to a $5,000 fine for each non-willful violation or $75,000 for each willful violation.

Free Look

Florida law requires agents to ask every person solicited for insurance whether they are currently covered under any other contracts. This enables the agent to explain the extent to which the proposed coverage will overlap or duplicate coverage. Before an application is taken, agents are required to obtain a signed form from the applicant acknowledging that this information has been provided.

The agent must give the applicant a buyer's guide and policy summary and disclose the free look allocation. If after the free look period ends and the applicant decides not to purchase the policy, he or she is entitled to a full refund of any premium amount collected by the insurer.

Buyer's Guide and Policy Summary

Florida law requires insurance companies to deliver a Buyer's Guide, which helps consumers shop and compare policies. Buyer's guides are written in layman's language for the average consumer's understanding. A Policy Summary is also required, which addresses the specific product being presented for sale. These documents are usually delivered before the agent accepts the applicant's initial premium.

With respect to annuities, the insurer must provide to each prospective purchaser a Buyer's Guide to Annuities and a Contract Summary as provided in the NAIC Model Annuity and Deposit Fund Regulation and the policy must provide a 14-day free look period.