New Jersey Life Producer Law Practice Test

What must an agent acquire when replacing a life insurance policy?

1. The applicant's credit score

2. The applicant's justification for the replacement

3. The applicant's previous insurer's consent

4. The applicant's medical history

The correct answer is: The applicant's justification for the replacement

When replacing a life insurance policy, the agent is required to acquire the applicant's justification for the replacement. This is crucial because it ensures that the applicant fully understands the reasons for changing their existing policy and the implications of doing so. By obtaining this justification, the agent confirms that the applicant is making an informed decision that aligns with their financial needs and goals. The requirement for justification helps prevent the practice of churning, where agents might encourage clients to replace policies without a valid reason, potentially leading to losses in benefits or increases in costs for the client. Ultimately, it serves as a protective measure for consumers, ensuring that any changes to their insurance coverage are necessary and beneficial. This practice is part of the regulatory framework designed to promote transparency and ethical behavior among insurance agents.