2.3 Georgia Replacement Rules

What Counts as a Replacement

Under Georgia Rule 120-2-24 ("Replacement of Life Insurance Policies"), a replacement occurs when a new life policy or annuity is bought and an existing policy is - as part of the transaction - lapsed, surrendered, forfeited, reduced in value, borrowed against, converted to reduced paid-up, continued as extended term, or amended to reduce benefits. Intent matters: it is a replacement if the new sale is what triggers the change to the old coverage.

The purpose of the rule is to make sure the consumer understands what they give up. The exam tests the mechanics - who delivers what, to whom, and how fast.

The Notice Regarding Replacement

The producer must give the applicant a written, signed Notice Regarding Replacement at or before application, listing every policy being replaced and disclosing the consequences:

Common trap: Replacing an old policy restarts the 2-year incontestability and 2-year suicide periods. A 15-year-old policy is fully incontestable; the brand-new replacement is contestable again for two years - a real disadvantage the producer must disclose.

Producer Steps (in order)

1. Ask whether the applicant has existing life insurance or annuities, and record the answer.
2. List each policy to be replaced on the notice.
3. Present the comparison and explain the disadvantages.
4. Obtain the applicant's and the producer's signatures on the notice.
5. Leave a copy with the applicant and submit a copy with the application.

Insurer Notification and the Existing Insurer's Role

When an agent is involved, the replacing insurer must send the existing insurer a copy of the Replacement Notice and written notice of the proposed replacement within 3 working days of receiving the application (or by the issue date, whichever is sooner). Note: the older guidance of "5 business days" is incorrect for Georgia - the rule says 3 working days.

The existing insurer then has a window to attempt conservation - contacting the policyholder to explain the value of the current coverage and offer alternatives to surrender. "Conservation" excludes routine items like late-payment reminders. The existing insurer may not make false or misleading statements about the new insurer or policy while conserving.

Right to Examine on Replacements

Because a replacement is high-stakes, the applicant receives an extended 20-day right to examine the new policy (vs. 10 days on a non-replacement). Returning the policy within the window yields a full refund.

Records Retention

The earlier "5 years" figure is a national rule-of-thumb; Georgia Rule 120-2-24 sets 3 years as the floor.

Prohibited Practices

Twisting

Twisting is using misrepresentation or incomplete comparisons to induce a policyholder to lapse or replace an existing policy. Examples:

• Falsely calling the existing policy "worthless."
• Misstating cash or surrender values.
• Hiding the new policy's surrender charges or new contestability period.
• Manufacturing false urgency.

Churning

Churning is twisting against the producer's own book - replacing a customer's policy with another policy from the same insurer mainly to generate new commissions, often resetting surrender charges.

Penalties

Both are unfair trade practices under Title 33. Consequences can include license suspension or revocation, monetary fines per violation, restitution to harmed consumers, and - in egregious cases - criminal referral.

Exam tip: Distinguish the two by who profits and where the replacement money goes: twisting = misrepresentation to replace (any insurer); churning = replacing within the same insurer's products for commission.

When the Replacement Rule Does NOT Apply

Not every new sale triggers Rule 120-2-24. The exam tests these exemptions:

• Credit life insurance.
• Group life insurance and group annuities.
• An application to the existing insurer that issued the old policy when a contractual conversion or term-to-permanent change is exercised.
• Proposed life insurance that is non-convertible term lasting 5 years or less and not renewable.
• Existing coverage that is an immediate annuity already in payout.

Knowing the exemptions prevents the classic trick question where a fact pattern looks like a replacement but is actually a group enrollment or a contractual conversion.

Step-by-Step Replacement Workflow

1. Producer asks about existing coverage and completes the signed Notice Regarding Replacement with the applicant.
2. Producer submits the application, the notice, and any sales comparison to the replacing insurer.
3. Replacing insurer verifies the notice is complete and, within 3 working days, sends the existing insurer the notice and written notification.
4. Existing insurer may attempt conservation - presenting facts (never misrepresentations) to retain the policy.
5. Consumer receives the new policy with a 20-day right to examine.
6. Both insurers retain the file at least 3 years.

Worked scenario: A producer replaces a client's $200,000 universal life policy issued in 2008. Because the old policy is long past its contestable period, the producer must disclose that the new $200,000 policy is contestable for 2 years and that any new health condition could surface in underwriting. Omitting that disclosure is twisting even if every number quoted is accurate, because the comparison is materially incomplete.

Why Georgia Cares About Replacement

Replacement can be legitimate - a healthier insured may genuinely get a better rate. But it routinely costs the consumer: a fresh contestable period, new surrender charges, higher attained-age premium, and possible loss of vested guarantees. The regulation's documentation and notice requirements exist so the consumer makes an informed choice, and so the Commissioner can later reconstruct whether the producer acted properly.