This section applies only to representatives who must replace a personal insurance contract.
The replacement notice is the form that the representative must complete when the situation involves replacing an insurance contract. The applicable procedure must be followed in the specific cases based on the conditions described in this section.
Only personal insurance representatives are bound to this procedure when they are replacing a client’s individual insurance contract OR registering a person for a group insurance contract and this registration results in the termination, cancellation, or reduction of benefits of an individual insurance contract.
The following are not applicable:
- representatives who are not certified in personal insurance
- those who are registering another person for a personal group insurance contract or group annuity contract, such as a company’s human resources manager
- members of mutual benefit societies (not guaranteeing payment of a benefit in the event of a risk occurring) that establishes contracts for this company, unless they are also certified in personal insurance
The replacement procedure is required under the regulations. It is a way to inform the client of the advantages and disadvantages of replacing the personal insurance contract in order to help him make an informed decision. Therefore, its main objective is to promote protection of the client. Also, it is a way to advise the insurer in question of the potential replacement of one of their contracts, which gives this insurer an opportunity to communicate with the client to understand the change requested, attempt to dissuade the client from replacing his contract, or offer him an equivalent contract, as applicable. Finally, it also serves the representative by justifying his recommendation to replace the contract.
Prioritize keeping a contract in place
The representative must prioritize keeping all personal insurance contracts in place, unless the replacement is in the client’s best interest. The representative can only proceed with the replacement when he is able to demonstrate that the replacement is actually in the client’s best interest.
Also, the representative must not encourage his client to cancel an existing contract, let it expire, or drop it for another contract other than through the replacement procedure.
In wanting to replace an existing insurance contract, the client could lose rights earned over time. The representative must ensure, therefore, that the client’s needs require a contract change.
Here are the reasons for which maintaining the current contract should be prioritized.
- If there has been no fraudulent declaration, a life insurance or accident insurance contract that has been in effect for more than two years cannot be cancelled or reduced by the insurer due to a false declaration or concealment (omission with the intent of misleading). This is often called the incontestability clause.
- The insurer cannot, through a general clause, exclude or limit the accident and sickness insurance due to a health problem not declared in the proposal, unless this health problem arises in the first two years of the insurance or if there has been fraud.
- The insurer cannot refuse to pay sums insured due to suicide of the insured person, unless this coverage exclusion has been expressly stipulated for this scenario. Even then, the stipulation does not apply if the suicide takes place after two years of uninterrupted insurance from the same insurer.
- The client’s health may decline over time to the point where it may become difficult or impossible to find an appropriate insurance at a cost that the client can afford.
Conducting a financial needs analysis
The personal insurance representative’s decision to offer a contract replacement must be made after a full collection of information and a financial needs analysis for his client. He must justify his recommendation to replace the client’s current insurance contract based on this analysis.
To this effect, the representative should get a copy of the client’s personal insurance contract, which includes all the features specific to his current coverage. The representative cannot complete the replacement notice “to the best of his knowledge.” He must base his decision on true, verifiable facts. The purpose of the notice is to objectively illustrate how the proposed insurance contract best suits the client’s situation by comparing the features of the current contract against those of the proposed contract.
1. Existing contract
When purchasing a personal life insurance contract may lead to the termination, cancellation, or reduction of benefits of another individual insurance contract, the replacement procedure must be followed. The following are specific cases in which it applies.
- Following the purchase of a new life insurance contract, a client decides to cancel the temporary life insurance portion that he receives in an existing insurance contract.
- A client wishes to use the cash surrender value of a current insurance contract to purchase a new one.
- A client who has an insurance contract that includes a life insurance rider for his child would like to cancel this rider and instead purchase a fully-fledged contract for his child. Because purchasing a new insurance contract will result in the client cancelling the rider, a replacement notice is required. However, if the rider had been cancelled with no new contract purchased, the representative would not have needed to complete the notice.
- A representative advises his client to replace his contract established in the United Sates with an American company. This is an insurance contract for which the client must be informed of the advantages and disadvantages of replacement, even if it is from a foreign insurance company.
2. Signed insurance proposal
When a personal insurance proposal has been signed by the client and the mode premium has been fully paid in cash or by cheque, the replacement procedure must be followed. The proposal signer must have given the necessary authorizations for the contract’s entry into effect, which may take the form of a bank authorization or a written authorization for withdrawal from his pay, or funds transfer from one contract to another with the same insurer.
Despite the above, the procedure does not apply in the event of an insurance proposal for which the premium has been paid in full if a medical exam was required and did not take place within the time period indicated in the proposal.
3. Insurance proposal combined with temporary insurance
The procedure must be followed when replacing an insurance proposal combined with temporary insurance not exceeding one year which was signed and for which the temporary insurance premium has been paid.
4. Insurance proposal with additional premium
When an insurer, after reviewing a proposal submitted by a personal insurance representative, agrees to issue an insurance contract for the client with an additional premium, the representative must follow the replacement procedure if he wishes to obtain the same contract from another insurer, but with no additional premium or extra premium.
5. Purchase of a group insurance contract
The replacement procedure must be applied when the personal insurance representative helps a person purchase a group insurance contract and this purchase results in the termination, cancellation, or reduction of benefits of an individual insurance contract.
Already Cancelled Insurance Contract
If the client has already cancelled his insurance contract himself before purchasing a new product with a personal insurance representative, this does not constitute a replacement. A replacement notice is therefore not necessary.
However, the client must confirm whether his client has actually cancelled his contract himself. He can also take the opportunity to fully inform his client of the consequences of such a cancellation, in particular when it comes to his insurability.
When a personal insurance representative replaces an individual annuity, including an insurer’s capitalization contract, he is not subject to the replacement procedure and does not need to complete the replacement notice.
Changes To A Contract
When the personal insurance representative changes a contract (e.g., changes a beneficiary, cancels a rider) without replacing it with a new contract, or changes a temporary contract to a permanent contract, he does not need to follow the replacement procedure. He can still use the notice to inform his client of the advantages and disadvantages of the proposed change.
Consequences On A Group Insurance Contract
If the contract that may be affected by the purchase of a new contract or by the purchase of a group insurance contract is itself a group contract, the representative is not obligated to complete a replacement notice. However, he must verify the group aspect of the contract that will be established before determining that he doesn’t have to follow the replacement procedure. He can find this information by contacting the insurer.
For example, mortgage insurance or loan insurance is typically group insurance, but in some cases, the client may believe he has insurance from his financial institution when the insurance was actually purchased from a subsidiary of this institution, and could therefore be individual. It’s possible that the institution has not informed him of this difference.
“Association group” income and disability insurance contracts may seem to be group insurance, but they are actually individual insurance for which a notice is necessary in the event of replacement.
The representative must therefore be careful. If there are any concerns, he should always complete a replacement notice form.
The personal insurance representative must not…
- bypass the replacement procedure by advising his client to not inform him of his intentions for the contract he already has. If the client mentions that he plans to cancel his current contract in one year, the representative must complete a replacement notice
- encourage his client to renounce an insurance contract, let it expire, or drop it in favour of another contract without following the replacement procedure
A single replacement notice form is included in the regulation; it must be used for all types of individual insurance contracts to be replaced (life, disability, serious illness, etc.).
This form allows the personal insurance representative to explain why replacing an insurance contract is in the client’s best interest. It includes several open-ended questions to help him educate the client on specific aspects of his situation.
Number of forms to complete
If the personal insurance representative proposes replacing multiple contracts with a single contract, he must complete a separate replacement notice for each contract being replaced. Additionally, if he recommends replacing an insurance contract with several other contracts, each of the new contracts will be subject to a separate notice, unless the purchasers are different.
- The notice number must be the same as that on the new insurance proposal.
- Important notices to the consumer regarding replacement steps and its impact on the incontestability and suicide clauses must be read and explained to the client. The client must understand the meaning of these notices, sign them, and date them.
- A copy of the completed form signed by the representative must be provided to the client within five business days of the proposal signature.
- The client must sign the notice and initial each page of the document by the time the new contract is delivered, at the latest. A copy of the completed form signed by the representative and the client must be provided to the client, and another copy must be saved in the client’s file.
When the personal insurance representative believes it is in the client’s best interest to replace the contract he currently owns, or when he notices that purchasing a new contract or joining a group contract could have an impact on the existing individual insurance contract, he must follow the procedure outlined below.
It is important to note that at this step, the representative has already completed an analysis of the insured person’s needs and has determined that the replacement is in the client’s best interest.
It should also be noted that changes to a contract are not considered a replacement. The representative is therefore not obligated to complete a replacement notice form if the client’s insurance contract is simply changed.
The following are the steps for replacing an insurance contract:
- Before or at the same time as the insurance proposal, complete and sign the replacement notice form. (lien 3)
- Explain the content of the form to the client, comparing the features of the existing contracts to those being offered, and describing the advantages and disadvantages of the replacement.
- Provide a copy of the completed form signed by the representative to the client within five business days of the signature of the proposal.
- The representative will choose a delivery method that ensures the client will receive the document within the required time period of five business days. He and the client should agree in advance on the delivery method to be used.
- To simplify delivery, the representative can send the form via e-mail, fax, registered letter, or any other method that provides proof that the document was sent and provides a presumption of the client’s receipt of the notice. Ideally, the representative will make sure he obtains such proof (e.g., confirmation of receipt) to demonstrate that the notice was not only sent, but also received.
- Rules established by the insurer with which the representative works may be more restrictive and severe than those imposed by the regulation. It is therefore essential to confirm in advance with the insurer which method he deems suitable.
- Send the completed form signed by the representative to the headquarters of the insurer from which the contract may be replaced, being sure to use a method that provides proof of the date of sending (e.g., messenger, registered mail, fax, e-mail) within five business days of the signature of the insurance proposal, even though the client may sign the notices upon the delivery of the contract (at the latest).
- The current insurer receiving the replacement notice may contact the client to attempt to dissuade him from proceeding with the replacement, or to offer him a contract that is the equivalent of the one offered. The representative cannot prevent the insurer from doing so.
- Send a copy of the completed form signed by the representative to the insurer with which the representative is proposing to purchase the new contract, within five business days of the client’s signature of the proposal.
- Have the client sign the notice and initial each page by the time the contract is delivered, at the latest.
- Keep a copy of the completed form signed by the representative and the client in the client’s file.