LIFE INSURANCE REPLACEMENT REGULATIONS

The life insurance industry has created and enacted its own "replacement regulations".

Talk about the fox in the henhouse!

Any industry would love to design and legally enforce such self-serving "regulations".

Let's take the automobile industry, for example, and invent a scenario as follows:


Malcolm Driver was given a car by his father as a gift when he graduated from college. It happened to be a used automobile, purchased by his father for cash from Honest Abe's Cars, a local dealership. Over the two years that Malcolm drove it he spent a considerable amount of money on mechanical upkeep, not unusual in maintaining a used vehicle that may not have been serviced properly.

Malcolm decides, after two years, to purchase a new car because the one he owns is unacceptedly costly to continue driving. He and his father pay a visit to a local Hometown NewCars dealership. Because they suspect that Honest Abe's salesperson had not been forthright two years earlier with regard to the car sold to Malcolm's father, they have no intention of contacting Honest Abe.

Dealing agreeably with the sales manager at Hometown NewCars, Malcolm and his father select the exact new car that they decide upon buying, a beautiful dark brown vehicle with full leather interior. Malcolm, understanding the details and pleased with the transaction, plans to drive away immediately in his new car after paying for it in cash.

That is when a problem arises. The helpful sales manager explaines that the automobile manufacuring industry has created and managed to require the seller of every vehicle that will replace one currently driven, to notify the former company, and its salesperson (if located and still in the business), of the replacement being considered. Moreover, the completion of a standard "replacement form" is required to be prepared and reviewed by all three parties to the proposed new transaction: Malcolm, Hometown NewCars, and last (but not least) Honest Abe's Cars and its former problematical salesperson (if he/she still works with Abe).

Malcolm will neither be able to drive away the new car nor even finalize the sale until the required replacement form is properly completed and has made its rounds. Of course, this scanario is absurd when applied to automobile manufacturers and their sales agents.

A few spin offs of any such life insursance industry regulation are to confuse, cloud, delay, and possibly thwart new transactions, as well as to provide notice to the former seller and its salesperson of record that their former customer is back in the market, taking an informed fresh look at a financial product sold to them.

Industry spokespersons emphatically explain that such "regulations" are necessary for "consumer protection". Review the life insurance industry's consumer protection history. Then grasp the real purpose for the replacement regulations prepared and touted by the companies.

Of course, the intention of the life insurance companies is to retain as much lucrative "cash values" as possible in the funny banking accounts of their existing customers.

As Senator Philip Hart hoped to achieve, kick the fox out of the henhouse forever.

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