MEMBER LOGINReplacement is a contentious issue in the annuity and insurance sectors. Replacing one contract or policy for another isn’t illegal, and sometimes it might be in the best interests of the insured. However, in the past, many agents advised consumers to replace an insurance policy or annuity contract for another out of self-interest, in a way that brought little benefit to the consumer.
New products and higher interest rates in the 1980s made the prospect of replacement more attractive to policy owners. However, when interest rates dropped and the market changed, many policy owners’ death benefits were reduced, premiums rose, and insurance companies found it difficult to guarantee the provision of benefits and loan values. This further complicated tie issue.
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Since then, the benefits of replacement to policy owners have become even more unattractive. Even so, replacement continues to be common, pointing to the possibility of a widespread breach in ethics—in which insurance agents encourage policy owners to replace their policies and contracts for their own self-interest.
To mitigate this problem, the state of Texas has introduced new rules to make sure policy owners are fully informed that they are replacing their existing annuity contract or insurance policy. These include:
Disclosure to the insurer. Under the new rules, insurance agents must disclose to the insurer when an applicant for a certain annuity contract or life insurance policy already has existing contracts or policies.
Disclosure to the insured. The rules also require the insurance agent to provide notice to the consumer that they are replacing their annuity or life insurance policy.
Required inquiry. When a prospect responds to a direct response marketing solicitation by applying for an annuity contract or life insurance policy, the insurance agent must ask whether the applicant plans to replace, discontinue, or change their existing contract or policy. If the applicant says that they do or do not intend to replace their contract or policy, the agent must send them notices written for either of these situations as detailed in the legislation.
The purpose of the new rules is to impose regulation on the replacement of excising life insurance policies and annuities; establishing minimum standards of conducts to protect policy holders; assure that purchasers get the information they need to make informed decisions; reduce opportunity for incomplete disclosure or misrepresentation; and enact penalties for agent non-compliance.
To learn more about Texas annuities and disclosure issues, check out our Texas Annuity Training Course.