A client in Nova Scotia approaches their existing life insurance agent, Sarah, wanting to replace their current $250,000 Term 10 policy, held for 7 years, with a new $500,000 Term 20 policy from a different insurer. The client believes the new policy offers better rates and wants to ensure they are making the right decision. What is Sarah's primary obligation as per the Life Insurance Replacement Declaration (LIRD) rules?

Question: A client in Nova Scotia approaches their existing life insurance agent, Sarah, wanting to replace their current $250,000 Term 10 policy, held for 7 years, with a new $500,000 Term 20 policy from a different insurer. The client believes the new policy offers better rates and wants to ensure they are making the right decision. What is Sarah's primary obligation as per the Life Insurance Replacement Declaration (LIRD) rules?

Answer options:

• Only complete the new application and forward it to the new insurer, as the client has made their decision.
• Advise the client that replacement is generally not recommended and refuse to process the new application. ✅ Complete the LIRD form, outline the advantages and disadvantages of replacing the existing policy, and ensure it is signed by both the client and Sarah.
• Suggest that the client obtain independent legal advice before proceeding with the replacement.

Correct answer: Complete the LIRD form, outline the advantages and disadvantages of replacing the existing policy, and ensure it is signed by both the client and Sarah.

Explanation: The LIRD rules (part of provincial regulations for life insurance, e.g., Nova Scotia Insurance Act) mandate that upon replacement, the agent must complete a LIRD form. This form details the proposed changes, the reasons, and the potential advantages and disadvantages of replacing an existing policy, protecting the client's interests and ensuring informed consent.