Replacement rules in Texas

Replacement is defined by what happens to existing coverage, not by what the salesperson calls the transaction. A financed purchase can qualify even when the old policy remains technically in force.

The rule in one view

The agent replacement duty starts with a signed question on every application

Every application, not just the ones involving a replacement, carries the duty. An agent who initiates an application for a life policy or annuity contract must submit to the insurer, with or as part of the application, a statement signed by both the applicant and the agent as to whether the applicant has existing policies or contracts.

If the answer is no, the agent duty is finished there. That is stated expressly, and it is why the signed statement matters even where nothing is being replaced.

If the answer is yes, the agent must present and read the replacement notice to the applicant, no later than at the time of taking the application. Both the applicant and the agent sign it, attesting that the agent read it aloud or that the applicant did not wish it read aloud.

The notice must be left with the applicant and must list every policy or annuity proposed to be replaced by insurer name, insured or annuitant name and contract number, saying for each whether it will be replaced or used to finance the new contract. Where it is signed electronically, the insurer mails a copy no later than the third business day after receiving the application. The agent must also leave the original or a copy of all sales material.

The replacing insurer notifies; the existing insurer informs

The replacing insurer verifies that the required forms arrived and comply, then notifies any existing insurer that may be affected no later than the fifth business day after receiving a completed application indicating replacement, or after replacement is otherwise identified.

It must also send the existing insurer the available illustration, policy summary or disclosure document no later than the fifth business day after that insurer asks for it, and must be able to produce the replacement notifications indexed by agent for five years or until its next regular examination, whichever is later.

The owner gets 30 days to hand the contract back. The replacing insurer must give notice of the right to return the policy or contract within 30 days of delivery for an unconditional full refund of premiums, including policy fees and charges, or for a variable or market value adjusted contract the cash surrender value plus the deducted charges.

The existing insurer has its own duties. It retains the notifications it receives indexed by the replacing insurer, sends the owner a letter about the right to information on existing policy values with an in-force illustration or policy summary, and on any request to borrow, surrender or withdraw values, sends a notice warning that releasing values may affect the guaranteed elements, face amount or surrender value.

A financed purchase is a replacement even when nothing lapses

Replacement is defined by effect on the existing contract, not by the word used at the kitchen table. It covers an existing policy that is lapsed, forfeited, surrendered or partially surrendered, assigned to the replacing insurer or otherwise terminated.

It also covers changes short of termination: conversion to reduced paid-up insurance, continuation as extended term, any other reduction in value through use of nonforfeiture benefits, amendment reducing benefits or the term of coverage, and reissue with any reduction in cash value.

And it covers a financed purchase, where withdrawal, surrender or borrowing from an existing policy pays premiums on the new one. Where the same policyholder and the same insurer are involved and the money moves within four months before or 13 months after the new policy effective date, that is prima facie evidence of intent to finance.

Getting it wrong is an unfair method of competition. Failing to ask the replacement question, recording the answer incorrectly, advising an applicant to answer no to prevent notice to the existing insurer, or steering the owner to contact the insurer so as to obscure who the replacing agent is, are all listed examples. A pattern of such applications by one agent is prima facie evidence of intent to violate the chapter.

How the distinction appears in a question

The first exam question is whether replacement exists. The second is which actor owes the next duty. Do not give the agent the insurer’s notice obligation or assume that disclosure alone removes the transaction from the rule.

A practical way to study it

For study purposes, reduce replacement rules in texas to the decision the examiner is testing. Write the trigger on one side of a card and the consequence on the other. Then change one fact in the scenario and decide whether the answer changes. That method is slower than rereading once and much faster than relearning the distinction after a practice test.

Draw three columns headed agent, replacing insurer and existing insurer. Replacement questions are largely routing questions once the triggering transaction is recognized.

Where the summary stops

Replacement rules contain forms, timing and exceptions that depend on current Texas regulation. The Insurance Code and lesson framework identify the roles, but a real transaction needs the current approved procedure.