Key Takeaways
- Rhode Island requires written notice when replacing life insurance policies
- Insurers must adopt procedures to prevent twisting and churning
- Replacement records must be maintained for examination
- Conservation period allows existing insurer to contact policyholder
- New contestability and suicide periods begin with replacement
Rhode Island Replacement Rules
Replacement occurs when a new life insurance policy or annuity is purchased and an existing policy is terminated or reduced. Rhode Island has detailed regulations under Title 27, Chapter 27-4 to protect consumers.
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 against
- 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 |
Insurer Requirements
Under R.I. Gen. Laws Section 27-29-4.7, each insurer must:
- Adopt written procedures to avoid twisting and churning
- Train producers on replacement requirements
- Monitor replacement activity
- Maintain records for regulatory examination
Prohibited Practices
Twisting
Twisting is making misleading representations or fraudulent comparisons to induce replacement:
- Falsely claiming existing policy is worthless
- Misrepresenting surrender values
- Making incomplete comparisons
- Omitting material information
Churning
Churning is excessive replacement to generate commissions:
- Multiple replacements for same client
- Pattern of replacements in book of business
- Using policy values to fund new policy without benefit to client
Exam Tip: Rhode Island law requires insurers to adopt written procedures to avoid twisting and churning. Failure to do so is an unfair trade practice.
What must Rhode Island insurers adopt to comply with replacement regulations?
Which of the following is an example of twisting in Rhode Island?