Key Takeaways
- Montana requires detailed written notice when replacing life insurance or annuities
- Producers must provide comparison of existing and proposed coverage
- Replacing insurer must maintain replacement records
- Twisting and churning are prohibited replacement practices
- New contestability and suicide periods begin with replacement policies
Montana 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. Montana has regulations to protect consumers from unsuitable replacements.
Definition of Replacement
A replacement occurs when a new policy is purchased and:
- An existing policy is lapsed, forfeited, or surrendered
- Policy values are reduced or borrowed
- Coverage is converted or reduced
- Policy is reissued with reduced values
- Policy is amended to reduce benefits
Required Disclosures
Replacement Notice
The producer must provide the applicant with a Replacement Notice that includes:
| Item | Requirement |
|---|---|
| Comparison | Side-by-side of existing and new policy |
| Surrender Values | Current and projected values |
| Death Benefits | Comparison of coverage amounts |
| Premium Costs | Cost difference over time |
| Surrender Charges | Charges for early termination |
| New Contestability | New 2-year period starts |
Important Disclosure
Exam Tip: Remember that a new 2-year incontestability and suicide exclusion period begins with a replacement policy. This is an important disclosure item.
Prohibited Practices
Twisting
Twisting is misrepresenting the terms of an existing policy to induce replacement:
- Falsely claiming existing policy is "worthless"
- Misrepresenting surrender values
- Hiding costs of replacement
- Exaggerating benefits of new policy
Churning
Churning is excessive replacement to generate commissions:
- Multiple replacements in short periods
- Pattern of replacements in producer's book
- Ignoring client's best interests
Records Retention
Montana requires maintenance of replacement records for regulatory examination purposes.
When a Montana policyholder replaces an existing life insurance policy, what happens to the contestability period?