What Is The Replacement Rule In Life Insurance? 
Every life insurance company requires notification of the replacement a life insurance policy . If the policy has cash values or the replacing agent wants to transfer the basis of the policy to the new policy , a 1035 exchange form will also be required . The rules of engagement are stringent . Borrowing cash values to fund a new policy could be construed as replacement . Lowering the death benefit of an existing policy while keeping the policy in force , may be interpreted as replacement if new coverage is added to a new policy . The department of insurance in most states will respond to companycomplaintsof agents not following the rules . 