Replacements

Policyholder 1

  • I'm dropping my whole life policy with your company and replacing it with company x's universal life policy.

Agent 1

  • Universal life is not right for you, and I recommend retaining your present policy.

Policyholder 2

  • I'm dropping my whole life policy with your company and replacing it with company x's universal life policy.

Agent 2

  • Universal life is not right for you, and I recommend retaining your present policy. -- (Sounds familiar, so far!)
  • But if universal life is what you really want, I will sell you our company's product.

-- HAROLD LEFF

1983Universal Life, Society of Actuaries

  • Life Insurance and Annuities Replacement Model Regulation (MDL-613) - PDF
  • NAIC - Replacement Issues Working Group
    • 2000-1
  • NAIC - Replacement Issues Subgroup 

    • 1996-3v2

  • NAIC - Life Insurance Replacement Regulations
    • 1982-1

6. Other matters submitted for our consideration:

  • (a) Mr. Bruce E. Shepherd, Executive Vice President, Life Insurance Association of America, presented a resolution to the committee recommending that policyholders should not surrender or lapse an existing policy of permanent life insurance and replace it with new life insurance.
  • A copy of the resolution is attached. (p517)

1961-2, NAIC Proceedings

About the same time that we were entering the Universal Life business, Universal Life brought about a change in the way we think about sales.

  • Replacement used to be a dirty word.Wehave all heard some talk about twisting, and it has strong negative connotations.

Universal Life, mainly because of its premium flexibility, has changed that.

I recently heard one of our marketing people refer to replacement of old traditional permanent policies with Universal Life.

He called it "The Enlightened Liberation of Assets".

--  STUART GRODANZ

1984 - VARIABLE UNIVERSAL LIFE, Society of Actuaries - 22p

  • Another recent marketplace phenomenon has been a sharp increase in replacement activity, with indications that perhaps half of all lapses involve replacement situations.
  • The revised NAIC Life Insurance Replacement Model Regulation adopted in 1978 is based on a recognition that a replacement is not necessarily disadvantageous to a policyholder, i.e., some replacements are well-justified and definitely in the consumer's interest.
  • One can see the obvious conflict between a company trying to maintain good persistency, which would mean combating replacement activity, and trying to promote the policyholder's best interest, which sometimes would mean not resisting a replacement.
  • The higher the volume of replacements, the more serious would be the company's dilemma.

1982-2, NAIC Proceedings - (524-526) - STATEMENT ON BEHALF OF THE AMERICAN COUNCIL OF LIFE INSURANCE TO THE NAIC (A) COMMITTEE'S MANIPULATION, LAPSATION, D1VlDEND PRACTICES AND ANNUITY DISCLOSURE TASK FORCE - June 8, 1982

  • Historically, companies were reluctant to replace life insurance because they might be in violation of the "twisting" laws.
  • Times have changed.
  • In 1969, the National Association of Insurance commissioners developed the 1970 Model Life Insurance Replacement Regulation.
  • This removed most of the "twisting" fears. 

--  WILLIAM T. TOZER <ACLI>

1981 - INDIVIDUAL LIFE INSURANCE COST DISCLOSURE ISSUES, Society of Actuaries

Senator METZENBAUM:

  • Mr. (James) Hunt, you made a statement that concerns me greatly.
    • You said in the 1980's, replacement life insurance policies began to proliferate.
    • Insurance companies are encouraging their policyholders to cash in their life insurance to buy new and often less secure products with the proceeds.
  • Why are so many policyholders cashing in their life insurance and buying new products?

1992 - GOV - Consumer Disclosure of Insurance - 323p 

Replacement falls under a broader category of disintermediation.

  • That is, the decline of the life insurance industry as a savings medium.
  • Disintermediation occurs through lapsation, increasing policy loan utilization, the continuing shift towards term insurance as well as a wave of product replacements within the industry itself.
  • It also occurs with a substantial opportunity cost as new savings dollars are being invested in other media.

--  William Britton Jr., Vice President and Principal of the Tillinghast firm

1983 - INDIVIDUAL LIFE INSURANCE, Society of Actuaries

In a June 13, 1978 letter to the NAIC, the ACLI opposed the 20-day "cooling-off" period option on the following ground:

  • Once a replacement sale has been consummated and the existing policy, insurer or agent have been discredited in the eyes of the policyholder, a reversal of that action will be extremely difficult, even if replacement is shown to be disadvantageous to the policyholder.125

1979 - GOV - FTC STUDY OF LIFE INSURANCE COST DISCLOSURE - Cannon - 592p

  • We designed commission rules that anticipated a relatively large number of rollovers of existing policies;
  • ...full commissions are paid provided the new Universal Life face amount is at least two times the face amount of the replaced policy.

--  Mr. Norton, not a member of the Society, is Vice President of The Lincoln National Life Insurance Company

 

1986 - INDIVIDUAL LIFE INSURANCE RETENTION AND REPLACEMENT STRATEGIES, Society of Actuaries - 24p