Illinois Life Producer State-designated Practice Exam

Which type of contract is affected by replacement regulations?

1. Term life insurance

2. Universal life insurance

3. Ordinary life insurance

4. Variable life insurance

The correct answer is: Ordinary life insurance

Replacement regulations are designed to protect consumers during the process of switching life insurance policies. Specifically, these regulations apply to ordinary life insurance contracts and any similar types of policies that can be replaced or replaced with a new contract. When a policyholder decides to replace an existing ordinary life insurance policy with a new one, replacement regulations require the insurance company to disclose pertinent information regarding the implications of replacing the policy, including potential loss of benefits or changes in premium rates. These regulations are intended to ensure that consumers make informed decisions by understanding the effects of replacing their current insurance coverage. While other types of life insurance such as term or universal life may also be subject to scrutiny during such transitions, the primary thrust of replacement regulations is focused on ordinary life insurance because of its traditional structure and long-term nature. This helps to safeguard against potential negative consequences that might arise from the switch, ensuring policyholders are fully informed about their options and the services provided by their insurers.