Illinois Life Producer State-designated Practice Exam

When an existing life insurance policy is being reissued with a reduction in cash value, what document must be signed by the producer and applicant?

1. Replacement disclosure form

2. Policy amendment form

3. Notice regarding replacement

4. Cash value adjustment document

The correct answer is: Notice regarding replacement

When an existing life insurance policy is being reissued with a reduction in cash value, the appropriate document that must be signed by both the producer and the applicant is known as the Notice regarding replacement. This document serves a critical purpose in the consumer protection framework of life insurance transactions. The Notice regarding replacement is designed to inform the applicant about the implications of replacing their existing policy, particularly when that replacement involves changes to cash value. It provides important information about how the coverage and benefits might differ and ensures that the applicant is fully aware of the consequences of reissuing their policy. This disclosure helps safeguard consumers by ensuring they make informed decisions when altering their life insurance coverage. In this scenario, proper procedure mandates that such a notice is completed whenever a replacement occurs to promote transparency and to protect the interests of the policyholder. This is particularly significant because a reduction in cash value can impact long-term benefits and policy performance. Other documents, while they may relate to policy changes or amendments, do not fulfill this specific requirement in the context of a replacement involving a reduction in cash value, which is why they are not the correct choice here.