Key Takeaways
- South Carolina requires written notice when replacing life insurance policies
- New contestability period begins with policy replacement
- Producers must disclose all costs associated with replacement
- Conservation period allows existing insurer to contact policyholder
- Replacement records must be maintained for regulatory examination
South Carolina Replacement Rules
Replacement occurs when a new life insurance policy or annuity is purchased and an existing policy is terminated or reduced. South Carolina has detailed regulations 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
Contestability Considerations
When replacing a policy, consumers should understand:
- A new 2-year contestability period begins
- The new insurer can investigate application statements
- Misstatements discovered during contestability may void coverage
- Previous policy's incontestability is lost
Required Disclosures
Replacement Notice
The producer must provide the applicant with disclosures including:
| 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 |
Prohibited Practices
Twisting
Twisting is making misrepresentations 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: Remember that a new 2-year contestability period begins with any replacement policy. This is an important disclosure item.
What happens to the contestability period when a life insurance policy is replaced in South Carolina?
Which of the following is an example of twisting in South Carolina?