Replacing life insurance and annuities in Texas

Replacement questions test who does what: the agent's duties at the application, the replacing insurer's duties afterward, and the existing insurer's duties.

Questions and answers, explained

All 4 questions above, with the correct answer and why it is correct. Everything here is on replacing life insurance and annuities in texas.

1. A dentist who co-owns a practice tells her agent she needs three separate things funded if she becomes disabled: (1) replacement of her own take-home pay, (2) money to keep paying the office lease and her hygienist's wages, and (3) cash for her co-owner to buy out her share if the disability proves permanent. Which combination correctly matches products to needs?

   • A(1) business overhead expense, (2) individual disability income, (3) key person disability
   • B(1) individual disability income, (2) key person disability, (3) business overhead expense
   • C(1) key person disability, (2) disability buy-sell, (3) business overhead expense
   • D(1) individual disability income, (2) business overhead expense, (3) disability buy-sellCorrect

   Why: Personal income replacement is the job of an individual disability income policy; fixed operating costs such as rent and staff wages are reimbursed by business overhead expense insurance; and a lump sum to transfer ownership is funded by a disability buy-sell policy. Choice B fails on the last two: key person coverage reimburses the BUSINESS for lost production and the cost of finding a replacement, and it does not transfer ownership.

   Reference Texas outline #124401, general section V (Types of policies)

2. Why must an agent pay special attention when a new health policy will replace an existing one?

   • AThe agent loses his license after any replacement
   • BReplacement is always illegal unless the old insurer gives its written consent first
   • CThe new policy may impose new preexisting-condition limits or waiting periodsCorrect
   • DThe old policy automatically doubles its benefits

   Why: Replacing health coverage can restart probationary and elimination periods, waiting periods and preexisting-condition limits, and can leave a gap. The agent should compare coverage and advise the applicant not to cancel the old policy until the new one is in force. Replacement itself is legal when it benefits the client.

   Reference Texas outline #124401, general section IX.G (Replacement)

3. A Texas applicant says she has an existing life policy she may replace. Under TIC 1114.051, what must the agent do no later than when taking the application?

   • ACancel the existing policy on her behalf so that the old and new coverage never overlap
   • BPresent and read the replacement notice, have both sign it, and leave a copy with herCorrect
   • CWait until the new policy is delivered before mentioning replacement
   • DNotify the existing insurer by phone within 24 hours

   Why: TIC 1114.051 requires the agent to submit a statement signed by applicant and agent on whether existing coverage exists. If it does, the agent must present and read the commissioner-approved replacement notice no later than when taking the application, have both sign it, and leave it with the applicant. Notifying the existing insurer is the replacing insurer's job, within five business days (TIC 1114.053).

   Reference TIC 1114.051, 1114.053 — Texas outline II.F.3

4. After receiving an application that indicates a replacement, by when must the replacing insurer notify each existing insurer under TIC 1114.053?

   • AOnly after the new policy is delivered
   • BWithin 30 days
   • CWithin five business daysCorrect
   • DWithin 24 hours

   Why: TIC 1114.053(c) requires the replacing insurer to notify any affected existing insurer within five business days after receiving a completed application indicating replacement, and to send the illustration or policy summary within five business days of the existing insurer's request. It must keep the replacement notices, indexed by agent, for at least five years or until its next regular examination.

   Reference TIC 1114.053 — Texas outline II.F.4

Drill the whole domain

• Types of Health Policies (12.3%)
• Field Underwriting Procedures (6.2%)
• Texas Statutes and Rules — Life Insurance Only (4.6%)

Other topics

• Texas agent licensing: temporary license, appointment and renewal
• Texas continuing education for life and health agents
• Texas unfair practices: rebating, twisting, defamation and discrimination
• Texas prompt claim payment deadlines
• Texas Life and Health Insurance Guaranty Association limits
• Texas required life insurance policy provisions
• Health policy uniform provisions, with the Texas numbers
• Texas health insurance mandates, Medicare supplements and the ACA
• Texas HMO rules for the life and health exam

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