Florida Statutes define the following practices as unethical or questionable under certain
MISUSE OF PREMIUM
Florida's Replacement Rule sets forth the requirements and procedures to be followed by insurance
companies and insurance producers when a proposal is being made to a client who plans to replace
existing life insurance contract(s) with the proposed new life insurance policy.
Replacing an existing policy with another should be done for only one reason: The producer genuinely
believes that canceling the policy (or reducing its values) to replace it with another policy is beneficial to
the client and in the client's best interest. To replace a policy to reap the reward of a higher first-year
commission is totally unethical.
It is seldom in the best interest of a policyholder to replace a life insurance policy with a new one due to
the following issues. Most of the first year's premium is consumed by the commission.
The premium is higher due to the insured's advanced age.
Waiting periods begin anew.
Policy replacement is “… an action which eliminates the original policy or diminishes its benefits or
Examples of this are policy loans, taking reduced paid-up insurance, or withdrawing dividends. The
replacement of existing life insurance policies with new contracts of life insurance requires a written
comparison and summary statement at the request of the policyholder.
WHAT IS REQUIRED BY THE FLORIDA REPLACEMENT RULE?
Improper policy replacement can be divided into two categories:
Twisting is also called external replacement and is the practice of inducing a person to drop existing
insurance to buy similar coverage with another producer or company. Replacing existing life insurance
with a new life insurance policy based upon incomplete or incorrect representation is called twisting.
This often is associated with making false statements about another insurer or producer, an illegal act
that also runs contrary to ethical market conduct.
Churning is slightly different and is called internal replacement. It is the practice of inducing a person to
drop their existing policy to buy another policy; however, it is within the same company and usually
with the same producer who sold the original policy. Churning typically takes place when policy values
are used to purchase another policy with the same insurer for the sole purpose of earning additional
premiums or commissions.
The agent bears the burden of providing a policy replacement is in the client’s best interest.
Ordinarily speaking, replacing a policy is not usually in the client's best interest due to the following
• changes in health and age;
• new contestable period;
• new policy fees and expenses;
• possible loss of policy upgrades or automatic improvements that may meet the policy owner's
• loss of grandfathered rights.
Following are some excellent guidelines and questions to reconsider when contemplating policy
• How does the new insurance need compare with the past need?
• Is the client drawn to contract features in the replacement policy that the existing policy lacks?
• What effect will the replacement policy have on future premiums, cash value accumulations, and
• What guarantees are being lost or gained?
• Will the policy owner incur surrender charges if the existing policy is cashed in?
• Is the policy owner's instability or underwriting status different?
Misrepresentation is the act of making, issuing, circulating or causing to be issued or circulated, an
estimate, illustration, circular or statement of any kind that does not represent the correct policy terms,
dividends or share of the surplus or the name or title for any policy or class of policies that does not in
fact reflect its true nature.
Simply put, any written or oral statement that does not accurately describe a policy's features, benefits
or coverage is considered a misrepresentation. A misrepresentation involves an untrue, incomplete or
misleading statement. Seems pretty cut and dry, doesn't it? However, there are situations in which a
producer may inadvertently misrepresent a product and not even be aware of it at the time. A simple
thing such as enthusiasm may be to blame.
A producer may be so excited about a new product and so convinced that it is in the client's best
interest that he/she may overlook or sidestep any potential drawbacks. Misrepresentation is most likely
to occur during the presentation.
Some of the most common examples of misrepresentation are:
Misrepresenting a policy's provisions or benefits or how the policy can be expected to perform over
Overstating promises and guarantees;
Giving the impression that policy dividends or cash value projections (other than those that are, in fact,
guaranteed, as stated in the policy) are guaranteed;
Using inaccurate or misleading information or numbers that misrepresent the financial condition of an
insurance company, a broker-dealer or another producer; Making any statements or giving reassurances
of any kind about coverage, the policy or premiums that are not true or that cannot be supported
clearly by the policy;
Engaging in the most serious type of misrepresentation - intentional fraud. Also, an agent shall not
make any misrepresentation as to the financial condition of any insurance company, or as to the legal
reserve system upon which any life insurance company operates, or use any name or title of any policy
which misrepresents the true nature thereof. [Rule 69B-215.230(1), .230(2), F.A.C.]
MISUSE OF PREMIUMS
Improper use of premiums collected by an insurance producer constitutes misuse of premiums. For
instance, depositing a client's premium payment in the producer's personal account (i.e., commingling
of funds). Premium theft is severely punishable by law. Premium payments can at no time be
intermingled with an agent's personal funds.
Only two states within the United States permit rebating (Florida and California); however, they are
closely scrutinized for any wrongdoing.
Rebating occurs when any part of the commission or anything else of value is given to the insured as an
inducement to buy a policy. It is illegal and cause for license revocation in most states. In some states, it
is an offense by both the agent and the person receiving the rebate. Florida regulations are very strict in
this respect and are designed to prohibit discrimination in favor of, or against, policy owners.