New Jersey Life Producer Law Practice Test

What action must an agent take when replacing a life insurance policy?

1. Submit a new application

2. Obtain justification from the applicant for the replacement

3. Notify the old insurer

4. Provide a summary of benefits

The correct answer is: Obtain justification from the applicant for the replacement

When replacing a life insurance policy, it is essential for the agent to obtain justification from the applicant for the replacement. This action is important because it helps ensure that the applicant understands the reasons for the switch and can provide clarity on their financial needs and circumstances. Insurance regulators encourage this practice to protect consumers and ensure that such financial decisions are made in their best interest. Gathering justification is part of the agent's responsibility to conduct a thorough needs analysis and makes sure that the replacement policy provides a meaningful benefit compared to the existing one. Additionally, it helps to confirm that the replacement will not result in negative consequences for the applicant, such as loss of benefits or increased costs, and that it is a suitable choice for their financial and protection needs. This step emphasizes the importance of ethical practices in insurance sales, ensuring that agents responsibly assess and recommend life insurance products based on the client's situation.