2.3 Florida Replacement Rules

What Counts as a Replacement

A replacement occurs when a new life policy or annuity is purchased and, as part of the transaction, an existing policy is lapsed, surrendered, forfeited, reduced in value, converted, or borrowed against. Florida's rules — Rule Chapter 69O-151, F.A.C. (insurer duties) and 69B-151, F.A.C. (agent duties) — exist so consumers do not give up valuable old coverage based on incomplete information.

A transaction is a replacement if the existing contract is:

• Lapsed, surrendered, or terminated;
• Reduced in value, or has values borrowed or withdrawn to fund the new contract;
• Converted to reduced paid-up or extended-term, or reissued with reduced benefits;
• Amended to reduce the benefit or term.

Why Replacement Is Risky for the Consumer

Required Forms and Notices

Florida uses two standardized forms (the exam expects you to know their roles, not memorize numbers):

• Form OIR-B2-312 — Notice Regarding Replacement / Comparative Information. The producer presents it at or before application; the applicant and producer sign it, listing every policy being replaced.
• Form OIR-B2-313 — Policy Summary detailing a contract's values, premiums, and benefits.

Producer Duties (69B-151)

When a replacement is involved, the producer must:

1. Present and obtain signatures on the Notice Regarding Replacement (OIR-B2-312), giving the applicant a copy;
2. Submit a copy with the application to the replacing insurer; and
3. Leave the consumer with all sales materials used.

Insurer Duties and Timing (69O-151)

Exam trap: Florida's rules turn on the immediate notice to the existing insurer and the 10-day existing-insurer response — not on a fixed "5-business-day notice" or a statutory "60-day conservation period." The existing insurer may still attempt to conserve (retain) the business, but the right is exercised through these form deadlines, not a separate countdown.

Prohibited Practices, Exemptions, and Enforcement

Twisting

Twisting is using misrepresentation or incomplete comparisons to induce an owner to lapse or replace coverage — for example, falsely calling an old policy "worthless," hiding the new surrender charges, or overstating the new policy's benefits. Twisting is an unfair trade practice under Section 626.9541, F.S.

Churning

Churning is a specific form of twisting where a producer uses the values of the consumer's own existing policy (cash value, dividends) to fund a new policy with the same or affiliated insurer, generating fresh commissions without genuine benefit to the client. Red flags include repeated internal replacements across a producer's book.

Penalties

Florida's Department of Financial Services (DFS) and Office of Insurance Regulation can impose:

• Administrative fines (commonly up to $5,000 per willful violation under Section 626.9521, F.S.);
• Suspension or revocation of the producer's license;
• Restitution to harmed consumers and cease-and-desist orders;
• Criminal referral in egregious fraud.

Exemptions and the 1035 Exchange

Some transactions are not subject to the full replacement rules, including credit life, certain group coverage, and policies funded entirely by the same insurer under a single application where no values are lost. A Section 1035 exchange lets an owner swap one annuity or life policy for a like contract tax-deferred — but it is still a replacement for disclosure purposes, so the OIR-B2-312 notice and comparison duties still apply.

Records Retention

Florida requires insurers and producers to keep replacement documentation so DFS can audit conduct. Maintain the signed Notice Regarding Replacement (OIR-B2-312), comparison statements, suitability records, and sales materials. As a practical compliance standard the industry retains these for at least 5 years, and many carriers keep them for the life of the contract plus several years. Failure to produce records on demand is itself a regulatory finding.

Conservation in Practice

When the existing insurer receives Form OIR-B2-312, it may conserve the business — contacting the policyowner to explain the value of the existing coverage and offer alternatives. Conservation efforts must be truthful: the existing insurer cannot disparage the replacing insurer or make false statements about the new policy, and it must ultimately respect the consumer's informed decision. The leverage point is the 10-day policy-summary deadline above, which arms the consumer with accurate side-by-side data before surrendering anything.

Producer Best-Practice Checklist

Before submitting any replacement, a Florida producer should:

1. Confirm the transaction truly meets the definition of replacement;
2. Complete and obtain signatures on OIR-B2-312;
3. Prepare an objective side-by-side comparison of premiums, values, surrender charges, and riders;
4. Document why the replacement serves the client's best interest;
5. Warn the client in writing about the restarted contestable and suicide periods and any new surrender schedule.

Exam tip: Distinguish twisting (misrepresentation to induce replacement, can be between unrelated insurers) from churning (replacement using the client's own existing policy values, usually with the same insurer). Both are prohibited, but the fact pattern naming the source of funds as the old policy itself points to churning.