Illinois Life Producer State-designated Practice Exam

What is Illinois' definition of life insurance replacement?

1. A new policy bought and the old one terminated

2. Changing terms of an existing policy

3. Transferring ownership of a policy

4. Adding riders to the current policy

The correct answer is: A new policy bought and the old one terminated

The correct response captures the essence of life insurance replacement in Illinois, which is defined as the act of replacing an existing life insurance policy with a new one. This involves terminating the old policy and establishing a new policy, which can occur for various reasons such as obtaining better coverage, lower premiums, or more favorable terms. In this context, the other options do not accurately reflect the definition of life insurance replacement. Changing the terms of an existing policy refers to modifications within the same policy rather than replacing it entirely. Transferring ownership of a policy does not involve creating a new contract; it merely means that the policy remains in force while the owner changes. Adding riders pertains to enhancing the current policy with additional benefits but does not equate to replacing the coverage. Thus, the understanding of life insurance replacement hinges on the act of purchasing a new policy and terminating the old one, making the first choice the most accurate representation of the definition in Illinois.