Under California's replacement rules (Section 10509 et seq.), which practice is the primary target of the regulation's disclosure requirements?
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Answer & full 3-part explanation (select an option above, or peek)
Why A is correct
The purpose of California's replacement article, beginning at Section 10509, is to protect purchasers by regulating replacement transactions, reducing misrepresentation and incomplete disclosure, and establishing penalties for noncompliance. Its central concern is "churning" — inducing a policyowner to surrender or replace an in-force life policy or annuity primarily so the agent earns new commissions, even when the replacement harms the owner. The law requires a Notice Regarding Replacement and full disclosure so the buyer can decide in his or her own best interest.
Why the other options are wrong
- B) Offering term coverage alongside existing insurance is not inherently an improper replacement unless an existing policy is surrendered and the client is misled.
- C) Adding a rider to a current policy is not a replacement transaction at all.
- D) Renewing a group policy with the same carrier is routine renewal, not a replacement.
Memory hook
Churning = surrendering a good old policy so the agent can sell a new one, the reason replacement rules exist.