An agent, Michael, is preparing to replace a client's existing term life policy with a new, larger term policy due to changed family circumstances. The client's existing policy has a cash value of $0 and no surrender penalties. The new policy offers a significantly higher death benefit for similar premiums because the client's health has improved. Michael completes the Life Insurance Replacement Declaration (LIRD) form. Which statement regarding the completion of the LIRD is true and reflects proper ethical and regulatory conduct?

Question: An agent, Michael, is preparing to replace a client's existing term life policy with a new, larger term policy due to changed family circumstances. The client's existing policy has a cash value of $0 and no surrender penalties. The new policy offers a significantly higher death benefit for similar premiums because the client's health has improved. Michael completes the Life Insurance Replacement Declaration (LIRD) form. Which statement regarding the completion of the LIRD is true and reflects proper ethical and regulatory conduct?

Answer options: ✅ Michael must ensure the LIRD clearly lists the advantages and disadvantages of surrendering the existing policy and acquiring the new one, despite there being no cash value or surrender penalties on the old policy.

• Michael can omit completing a full LIRD since the existing policy has no cash value and no surrender penalties, making the replacement straightforward.
• Michael only needs to get the client's signature on the LIRD after the new policy has been issued and formally replaces the old one.
• Michael is only required to discuss the LIRD verbally with the client, not necessarily provide a written copy.

Correct answer: Michael must ensure the LIRD clearly lists the advantages and disadvantages of surrendering the existing policy and acquiring the new one, despite there being no cash value or surrender penalties on the old policy.

Explanation: The LIRD must always be completed and provided to the client for clear disclosure of all implications of replacement, including a comparison of benefits and disadvantages, even if the existing policy has no cash value or surrender penalties. The LIRD is a mandatory written document, not just a verbal discussion, and must be provided before the application for the new policy.