California Insurance License Exam Practice Test Practice Question
An insured replaces an existing annuity with a new one and must pay a surrender charge for cancelling the existing annuity. The new policy holds no greater financial benefits to the insured than the existing contract. This is an example of
Correct Answer: D
Rationale: Replacing an existing annuity with a new one that offers no greater financial benefits, while incurring surrender charges, exemplifies an unnecessary replacement. This choice does not enhance the insured's financial position, making it detrimental.
Option A, nonforfeiture, refers to rights that allow policyholders to retain some benefits if they discontinue payments, which is not applicable here. Option B, a deferred annuity, describes a type of annuity that accumulates value over time but does not address the replacement issue. Option C, a substandard annuity, pertains to policies issued with unfavorable terms due to the insured's risk profile, which is irrelevant in this context.
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