2.3 Vermont Replacement Rules
Key Takeaways
- Vermont requires written notice when replacing life insurance policies
- New contestability period begins with policy replacement
- Producers must disclose all costs associated with replacement
- Replacement records must be maintained
- Twisting and churning are prohibited practices
Replacement occurs when a new life insurance policy or annuity is purchased and an existing policy is terminated or reduced.
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 amended to reduce benefits
Required Disclosures
The producer must provide 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
Exam Focus
For Vermont Replacement Rules, watch for the trigger event: an existing policy is being lapsed, surrendered, reduced, borrowed against, converted, or otherwise changed because a new policy is being sold. Exam questions often ask who must give notice, what comparison or disclosure must be delivered, and when the replacing insurer must review the transaction. The safest answer is usually the one that protects the applicant from losing guarantees, surrender values, incontestability protections, or existing underwriting status without clear written disclosure.
What happens to the contestability period when a life insurance policy is replaced in Vermont?