2.3 New Hampshire Replacement Rules

What Counts as a Replacement

A replacement is any transaction in which a new life insurance policy or annuity is purchased and, because of it, an existing policy or contract is acted upon in one of these ways:

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

Both the producer and the consumer must answer the replacement questions on the application ("Do you have existing life insurance or annuities? Will this transaction replace them?"). The answer drives the entire disclosure process.

Required Disclosures and Notices

When a replacement is involved, the producer must:

1. Present and read the Notice Regarding Replacement and obtain the applicant's signature;
2. Give the applicant a list of all existing policies to be replaced (insurer name, policy number, insured);
3. Leave the applicant copies of all sales material used; and
4. Submit the signed notice to the replacing insurer with the application.

Duties of the Insurers

New Hampshire's replacement rule splits duties:

• The replacing insurer must notify the existing insurer of the pending replacement (typically within a few business days of receiving the application).
• The existing insurer then has a conservation window (commonly about 20 days) to send the policyowner information about keeping the existing coverage.
• The replacing insurer must maintain replacement records (notices, comparisons, sales material) for the period set by rule for market-conduct examination.

Why Replacement Is Risky for the Consumer

Replacement is not illegal, but it carries hazards the notice is designed to surface:

• New contestability: the new policy restarts the 2-year incontestability clock (RSA 408:10), so the insurer can again contest the application for fraud or material misstatement.
• New suicide period: a fresh 2-year suicide exclusion (RSA 408:13) begins.
• New surrender charges: the consumer re-enters a multi-year surrender-charge schedule on the new contract.
• Higher cost of insurance: the consumer is older, so a new life policy is usually priced higher.
• Lost rights: older policies may carry better guaranteed rates, vested loan terms, or grandfathered tax treatment.

Scenario: A producer convinces a 60-year-old to surrender a 12-year-old whole life policy (past its contest and suicide periods, low loan rate) for a new one. The client loses both 2-year protections, pays a higher cost of insurance, and starts a new surrender schedule — a textbook unsuitable replacement the notice should have stopped.

Prohibited Practices

Twisting

Twisting is the misrepresentation or incomplete comparison of an existing policy to induce a policyowner to replace it. Examples:

• Falsely calling the existing policy "worthless" or "obsolete";
• Misstating its surrender value or dividends;
• Hiding the new surrender charges or the restarted contestability period;
• Exaggerating the new policy's benefits.

Churning

Churning is replacing policies — often within the same insurer or a producer's own book — primarily to generate commissions, regardless of the client's benefit. Red flags: repeated replacements in short cycles, a pattern across a producer's clients, and ignoring the consumer's best interest.

Both twisting and churning are unfair trade practices under New Hampshire law, subject to license suspension or revocation, fines, and orders of restitution by the Insurance Commissioner.

How Producers Stay Compliant

The practical compliance steps a New Hampshire producer follows on every transaction with existing coverage:

1. Ask the replacement questions on the application and record the answers.
2. If replacement is indicated, present and read the Notice Regarding Replacement and obtain signatures from both the applicant and the producer.
3. Prepare an accurate, good-faith comparison — not a sales pitch — of the existing and proposed coverage.
4. Leave copies of all illustrations and sales material with the applicant.
5. Submit the signed notice and existing-policy list to the replacing insurer with the application.
6. Retain the file for the rule-required record period.

Exempt and Non-Replacement Transactions

Not every new sale triggers the replacement rules. Common transactions that are not replacements include:

Knowing the exemptions matters: applying the full replacement notice to a transaction that is not a replacement is a procedural error, while failing to apply it to a true replacement is a regulatory violation.

Penalties and Producer Accountability

Violating the replacement rules — or committing twisting or churning — exposes the producer to administrative action by the New Hampshire Insurance Commissioner: cease-and-desist orders, monetary penalties, suspension or revocation of the producer license, and restitution to the harmed consumer. Because replacement files are reviewed during market-conduct examinations, sloppy or missing documentation is itself a finding, even if the underlying sale was suitable.

Common Exam Traps

• A loan or partial surrender of more than the rule's threshold (about 25% of loan value) used to fund the new premium counts as a replacement, even though the old policy survives.
• The replacing insurer must notify the existing insurer — not the other way around.
• Twisting = misrepresentation; churning = commission-driven replacement; rebating = giving something of value. Keep the three straight — they are the most-confused distractors.
• Replacement restarts contestability and suicide — it does not preserve the old policy's elapsed periods.