Which statement best defines replacement in life insurance?

• A. It involves converting term to whole life only
• B. It is a policy that simply increases face amount
• C. It is a transaction in which a new policy is purchased and an existing policy is surrendered
• D. It never involves surrendering an old policy

Answer: (C)

Replacement occurs when a new life insurance policy is purchased and an existing policy is surrendered (or otherwise terminated) as part of that transaction. It’s about exchanging one contract for another, with the old policy ending and a new policy taking its place. That’s why the option describing a transaction where a new policy is bought and an existing one is surrendered best defines replacement.

Other ideas miss the core point. Replacing isn’t limited to converting term to whole life, nor is it simply about increasing the face amount. And replacement does involve surrendering the old policy—not avoiding it.