Florida Replacement Rules

Replacement occurs when a new life insurance policy or annuity is purchased with the intent to terminate, surrender, or reduce coverage under an existing policy. Florida has detailed regulations to protect consumers from unsuitable replacements.

Definition of Replacement

Under Florida law, a replacement occurs when a new policy results in:

• An existing policy being lapsed, forfeited, or surrendered
• Policy values being reduced, borrowed, or withdrawn
• Coverage being converted or reduced
• Policy being reissued with reduced values
• Policy being amended to reduce benefits

Replacement Notice Requirements

Notice to Applicant

The producer must provide the applicant with a Replacement Notice that includes:

Notice to Existing Insurer

Within 5 business days of application, the replacing insurer must notify the existing insurer:

• Name of policyholder
• Policy number being replaced
• Name of new insurer
• Type of new coverage

Conservation Period

Florida provides a 60-day conservation period:

• Existing insurer has 60 days to contact policyholder
• Can explain value of existing coverage
• Can offer alternatives to replacement
• Cannot make false statements about new insurer
• Must respect policyholder's final decision

Prohibited Replacement Practices

Twisting

Twisting is misrepresenting policy terms to induce a policyholder to lapse or replace coverage:

Examples of twisting:

• Falsely claiming existing policy is "worthless"
• Misrepresenting cash surrender values
• Hiding surrender charges of replacement
• Exaggerating benefits of new policy

Penalties for twisting:

• License suspension or revocation
• Fines up to $5,000 per violation
• Civil liability to harmed consumers
• Criminal prosecution in egregious cases

Churning

Churning is excessive replacement of policies to generate commissions:

Red flags for churning:

• Multiple replacements in short periods
• Same client replacing policies repeatedly
• Pattern across producer's book of business
• Using existing values to pay new premiums

Producer Responsibilities

Before recommending a replacement, the producer must:

1. Compare existing and proposed policies objectively
2. Consider whether replacement is in client's best interest
3. Disclose all relevant information including costs
4. Document the basis for the recommendation
5. Ensure client understands consequences

Important Disclosures

Records Retention

Florida requires insurers and producers to maintain replacement records:

Exemptions from Replacement Rules

Certain transactions are exempt from replacement requirements:

Not Considered Replacements

• Credit life insurance
• Group life insurance (in some cases)
• Policies under $10,000 face amount
• Term conversions within same insurer
• Policies where no cash values exist

Modified Requirements

Some transactions have modified replacement rules:

• Internal replacements (same insurer)
• Qualified exchanges (1035)
• Group to individual conversions

Enforcement

DFS Authority

DFS can investigate replacement violations and impose:

• Administrative fines
• License suspension or revocation
• Required restitution to consumers
• Cease and desist orders

Private Right of Action

Consumers harmed by replacement violations may:

• Sue for damages
• Seek rescission of the transaction
• Recover attorney's fees in some cases