What to know if you are replacing an existing life Insurance contract

There may be instances where agents are asked or required to replace life insurance contracts for their clients. Before doing so, agents should be aware of the Financial Institutions Act and follow the regulations related to their insurance business.

The Financial Institutions Act's Insurance Contracts (Life Insurance Replacement) Regulation governs the replacement of life insurance contracts, and agents replacing existing life insurance contracts must ensure the replacement complies with the Regulation and is in the best interests of the insured clients.

Where replacement could be detrimental to the interests of an insured, an agent must make every reasonable effort to maintain the existing policy in force. When a replacement is necessary, the agent must provide the client with full disclosure, which includes a copy of the required Declaration Statement along with written explanations of the advantages and disadvantages of replacing the policy, allowing the client to make an informed decision on whether to replace the existing policy. The written explanation must address the client’s specific needs and must be clear, comprehensive and easily understood. The client, the life insured if other than the client, and the life agent must sign and date the form.

For more information about the requirements for replacing a life insurance contract, review Insurance Council Notice ICN #12-003 Amendment To Insurance Contracts (Life Insurance Replacement) Regulation or contact our Practice & Quality Assurance team at practice@insurancecouncilofbc.com or 604-695-2008 or 1-877-688-0321.