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Pennsylvania life insurance and annuity replacement practice questions

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Both Pennsylvania exams, Life (Series 16-01) and Accident and Health (Series 16-02), list "Replacement (40 P.S. ยง 625, 31 Pa Code Ch. 81)" in section 1.0 Insurance Regulation. [1] [2] Chapter 81 of the Pennsylvania Code sets the rules for replacing existing life insurance and annuities. This page explains them and gives 10 practice questions.

Why the rules exist (31 Pa. Code 81.1)

The chapter regulates insurers, agents and brokers in replacement sales, and protects buyers by making sure they get information to decide in their own best interest, by reducing misrepresentation and incomplete disclosure, and by setting penalties. [3]

What counts as a replacement (31 Pa. Code 81.2)

The definition of replacement lists the ways existing life insurance or an annuity can be affected, including being: lapsed, forfeited, surrendered or otherwise terminated; converted to reduced paid-up insurance or extended term insurance or otherwise reduced in value through nonforfeiture or cash values; amended to reduce benefits or the coverage term; reissued with less cash value; or pledged or borrowed against for more than 25% of the policy's loan value. [4] "Conservation" is an attempt by the existing insurer or its agent to talk the owner out of replacing. [4]

Exempt transactions (31 Pa. Code 81.3)

The chapter does not apply to group life insurance or group annuities, to coverage under the credit life and credit accident and health model act, to a conversion or contractual change exercised with the existing insurer, or to replacing coverage under a binding or conditional receipt from the same company. When the replacing and existing insurer are the same or affiliated, only some agent duties apply. [5]

Agent and broker duties (31 Pa. Code 81.4)

With each application, the agent must submit a statement signed by the applicant saying whether replacement is involved, and the agent's own signed statement on whether they know replacement is or may be involved. [6] If replacement is involved, the agent must:

Insurer duties (31 Pa. Code 81.6)

The replacing insurer must notify each existing insurer in writing, with policy data, within 5 working days of receiving the application or issuing the policy, whichever is sooner. [7] An existing insurer that tries to conserve the policy must give the owner policy data within 20 days of receiving that notice. [7] The replacing insurer must keep evidence of compliance, including a replacement register, for at least 3 years or until the next regular examination, whichever is earlier. [7] The new policy must carry a notice on its first page giving the right to an unconditional refund of all premiums within 20 days after delivery. [7]

Penalties (31 Pa. Code 81.8)

Failure to comply can bring penalties for agents and insurers after a hearing, and failing to make the required disclosures may also violate the Unfair Insurance Practices Act. A pattern of replacements by the same agent's clients is treated as prima facie evidence that the agent knew replacement was intended. [8]

Practice questions

1. An owner borrows 40% of a policy's loan value to fund a new policy. Is that a replacement?

A. No, loans never count
B. Yes, borrowing more than 25% of the loan value counts
C. Only if the old policy lapses
D. Only for annuities

Answer: B. (31 Pa. Code 81.2) [4]

2. What is "conservation"?

Answer: An attempt by the existing insurer or its agent to dissuade the owner from replacing, not counting routine reminders or reinstatement offers. (81.2) [4]

3. Does Chapter 81 apply when an employer replaces one group life plan with another?

Answer: No. Group life insurance and group annuities are exempt. (81.3(2)) [5]

4. When must the agent give the replacement notice to the applicant?

Answer: No later than the time the application is taken. (81.4(b)(1)) [6]

5. Who signs the replacement notice?

Answer: Both the applicant and the agent or broker, and it is left with the applicant. (81.4(b)(1)) [6]

6. What must the agent submit with every application, replacement or not?

Answer: The applicant's signed statement on whether replacement is involved and the agent's signed statement on whether they know replacement is or may be involved. (81.4(a)) [6]

7. How soon must the replacing insurer notify the existing insurer?

Answer: Within 5 working days of receiving the application or issuing the policy, whichever is sooner. (81.6(a)(2)(ii)) [7]

8. The existing insurer decides to try to keep the business. How long does it have to send the owner policy data?

Answer: 20 days from receiving the replacing insurer's notice and materials. (81.6(b)) [7]

9. How long is the unconditional refund right on a replacement policy?

Answer: 20 days from delivery. (81.6(d)) [7]

10. Several of an agent's clients mark "no replacement" but later replace. How does the rule treat that pattern?

Answer: As prima facie evidence that the agent knew replacement was intended, and patterns of replacement are violations. (81.8(d)) [8]

Study tips

Practice more with the Pennsylvania insurance law practice test.

Prep Retention is independent and is not affiliated with PSI or the state.

Sources

Laws and exam documents quoted as of October 2026.

  1. PSI, Pennsylvania Life outline, Series 16-01 (effective 3/1/2026): https://proctor2.psionline.com/media/programs/PAINS/16-01xx.pdf
  2. PSI, Pennsylvania Accident and Health outline, Series 16-02 (effective 3/1/2026): https://proctor2.psionline.com/media/programs/PAINS/16-02xx.pdf
  3. 31 Pa. Code 81.1: https://www.pacodeandbulletin.gov/Display/pacode?file=/secure/pacode/data/031/chapter81/s81.1.html&d=reduce
  4. 31 Pa. Code 81.2: https://www.pacodeandbulletin.gov/Display/pacode?file=/secure/pacode/data/031/chapter81/s81.2.html&d=reduce
  5. 31 Pa. Code 81.3: https://www.pacodeandbulletin.gov/Display/pacode?file=/secure/pacode/data/031/chapter81/s81.3.html&d=reduce
  6. 31 Pa. Code 81.4: https://www.pacodeandbulletin.gov/Display/pacode?file=/secure/pacode/data/031/chapter81/s81.4.html&d=reduce
  7. 31 Pa. Code 81.6: https://www.pacodeandbulletin.gov/Display/pacode?file=/secure/pacode/data/031/chapter81/s81.6.html&d=reduce
  8. 31 Pa. Code 81.8: https://www.pacodeandbulletin.gov/Display/pacode?file=/secure/pacode/data/031/chapter81/s81.8.html&d=reduce

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