PSI Life Exam Practice Test

When should an intermediary determine whether replacement is involved in a transaction?

1. At the time of the initial consultation

2. No later than when the insurance company issues the policy

3. When the policy is being surrendered

4. Only after the policyholder has signed the contract

The correct answer is: No later than when the insurance company issues the policy

The correct response is that an intermediary should determine whether replacement is involved in a transaction no later than when the insurance company issues the policy. At this stage, it is essential for the intermediary to assess any potential replacements to ensure compliance with regulatory requirements and to protect the interests of the client. Identifying replacement helps to evaluate the necessity of full disclosures and ensures that the policyholder is informed about the implications of replacing their existing policy. It allows the intermediary to give appropriate guidance regarding differences in coverage, costs, and benefits between the new and old policies, ensuring that the client is making the most informed decision possible. Determining this at the time of the initial consultation or when the policy is being surrendered may not provide an adequate timeframe for the intermediary to conduct thorough reviews and fulfill necessary obligations to protect the client’s interests, which is crucial for ethical practices in the insurance industry. Additionally, waiting until after the policyholder has signed the contract would not allow for any useful discussions about the implications of replacement, potentially leading to issues that could have been prevented if addressed earlier in the process.