2.3 Louisiana Replacement Rules

What Counts as a Replacement

A replacement occurs when a new life insurance policy or annuity is purchased and, as a result, an existing in-force policy is or will be:

• Lapsed, forfeited, surrendered, or terminated
• Reduced in value or amount of coverage
• Borrowed against for more than 25% of the loan value to pay the new premium
• Converted to reduced paid-up insurance or continued as extended term
• Amended to reduce benefits or the term of coverage
• Reissued with a reduction in cash value

The label "replacement" is transaction-based, not intent-based: if these effects occur, the replacement rules apply even if the producer did not call it a replacement. On the application the producer must ask, and the applicant must answer, whether the sale involves replacing existing coverage.

Extended Free Look for Replacements

Louisiana doubles the right-to-examine window for a replacement life policy to 20 days (from the standard 10), beginning on the date of delivery. The buyer may return the policy for a full premium refund, giving them a longer runway to compare the new contract against what they are giving up.

Required Replacement Notice

The producer must deliver — and have the applicant sign — a replacement notice (often the "Important Notice: Replacement of Life Insurance or Annuities") that lays out a fair comparison:

Notice to the Existing Insurer

The replacing insurer must notify the existing insurer in writing that a replacement is pending so the existing company can attempt to conserve the business (offer the policyholder reasons to keep the original). The notice identifies the policyholder, the policy number being replaced, the new insurer, and the type of new coverage. The existing insurer is typically allowed a window to furnish in-force policy information.

Exam Tip: A replacement restarts BOTH the 2-year incontestability clause and the 2-year suicide exclusion on the new policy. A client surrendering a 12-year-old, fully incontestable policy loses that protection and is contestable again for two years — a key reason replacement is often not in the client's interest.

Prohibited Practices

Twisting

Twisting is the use of misrepresentation or incomplete comparison to induce a policyholder to lapse, surrender, or replace an existing policy. The harm is to the consumer through a deceptive replacement. Examples:

• Falsely telling the client the existing policy is "worthless" or "a bad deal."
• Misstating the current cash or surrender values.
• Hiding the surrender charges on the new contract.
• Exaggerating the benefits or returns of the proposed policy.

Churning

Churning is a special form of twisting in which a producer replaces policies — often using the cash value of the consumer's own existing policies — primarily to generate new commissions. The classic red flags:

• Repeated replacements for the same client over short intervals.
• A pattern of new surrender-charge periods restarting again and again.
• Surrender charges left undisclosed across the producer's book of business.

Comparing the Two

Records Retention

The insurer and producer must retain replacement records — including the signed replacement notice, comparison documents, and the existing-insurer notification — for the period required by LDI (generally at least 5 years or the applicable record-retention rule), and produce them on the Commissioner's request during a market-conduct examination.

Producer Checklist Before Recommending a Replacement

1. Compare the existing and proposed contracts objectively, in writing.
2. Determine that replacement is genuinely in the client's best interest, not just the producer's.
3. Disclose all costs, surrender charges, and the restart of contestable/suicide periods.
4. Document the basis for the recommendation and keep it on file.
5. Ensure the client understands the consequences and signs the replacement notice.
6. Notify the existing insurer so it can attempt conservation.

When Replacement Genuinely Helps the Client

Not every replacement is bad. A producer can properly recommend one when, for example, the new contract offers materially lower cost for the same coverage, the old policy is about to lapse with little cash value at stake, or the consumer's needs have changed (a term policy nearing the end of its level period being replaced with permanent coverage). The test is always whether, after honest comparison, the consumer is better off — and whether the producer documented that conclusion.

Worked Replacement Scenario

A client owns a 12-year-old whole life policy with $18,000 of cash value and a fully incontestable status. A producer proposes surrendering it for a new universal life policy. To comply, the producer must: deliver the signed replacement notice comparing both contracts; disclose any surrender charge on the old policy and the $18,000 cash value being moved; explain that the new policy is contestable again for 2 years and carries a fresh suicide exclusion; notify the existing insurer; and document why the change benefits the client despite losing 12 years of incontestability.

If the producer instead simply tells the client the old policy "earns nothing" without the comparison, that is twisting.

Penalties

Violations of the replacement and unfair-trade-practice rules under LA R.S. Title 22 can result in:

• Suspension or revocation of the producer's license by the Commissioner.
• Administrative fines (per-violation monetary penalties).
• Restitution / civil liability to the harmed consumer.
• Criminal prosecution in egregious fraud cases.

Common Trap: Replacement is never automatically prohibited — it is permitted when properly disclosed and suitable. The violation is improper, deceptive, or commission-driven replacement. Do not pick an answer saying replacement is illegal; pick the answer about proper disclosure and best interest.