New Jersey Life Producer Law Practice Test

What is the term used when a producer helps an insured convert a life policy to reduced paid-up insurance for the purpose of purchasing a new policy?

1. Reinstating

2. Converting

3. Replacing

4. Renewing

The correct answer is: Replacing

The term used when a producer assists an insured in converting a life policy to reduced paid-up insurance for the purpose of purchasing a new policy is known as "replacing." This process involves the insured exchanging an existing life insurance policy for a new one, which can sometimes lead to certain complications or regulatory scrutiny, as the insurer and the producer must ensure that the replacement is in the best interest of the policyholder. In the context of insurance, replacing a policy involves considerations such as the cost differences between the old and new policies, the coverage amounts, and potential benefits lost when switching. It’s essential that the producer discloses all relevant information to the insured to ensure they are making an informed decision. While reinstating refers to reviving an expired insurance policy, converting is associated with moving from one type of policy to another within the same company, and renewing is about extending coverage without any changes, none of these accurately describe the act of exchanging one policy for another, as is the case with replacement.