The Replacement That Reset the Clock
Marcus, 58, applies for $750,000 of whole life to replace his 12-year-old $250,000 term policy, which is still in force at a $600 annual premium. On the application he answers "never smoked" - he actually quit 14 months ago after 25 years at two packs a day. He leaves blank the question about past heart procedures; a coronary stent was placed in 2023. His agent knows about the stent and submits the application anyway, without giving a replacement notice or comparing the two policies. The insurer issues the policy at standard rates in March 2024. Marcus dies of a heart attack in October 2025, nineteen months later.
1. Must the insurer pay the $750,000 death benefit?
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Probably not. The policy was issued in March 2024 and Marcus died 19 months later, inside the two-year contestability period, so the insurer may rescind, refund premium with interest, and deny the claim.
Both problems are material. "Never smoked" is a false answer against a 25-pack-year history that ended only 14 months before application - that history typically moves a case from preferred to table-rated or declined. The blank heart-procedure question is concealment; leaving a clear question unanswered is treated as an answer, not a safe harbor. The agent's personal knowledge of the stent does not normally defeat the insurer's rescission, because the applicant signed and certified the application himself. If the policy had been in force past two years from issue, incontestability would bar this defense and the full face would be payable.
2. What would have happened if Marcus had died at 25 months instead of 19? What if he had only misstated his age?
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At 25 months the incontestability clause bars the insurer from rescinding for misrepresentation, so the $750,000 is paid. The suicide clause separately runs two years from issue, so a suicide at 25 months is also paid. This is the direct cost of the replacement: the incontestability clock runs from the issue date of the new contract and is not credited with the 12 years the term policy had already survived.
Misstatement of age, by contrast, never becomes contestable, but the remedy is not rescission. The insurer adjusts the benefit to the amount the premium actually paid would have purchased at the correct age, and pays that reduced figure. Misstated sex works the same way in states that still use sex-distinct tables.
3. What replacement obligations did the agent fail to meet, and what was the correct approach?
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Georgia's replacement regulation requires the agent to (1) present and leave with the applicant a written notice that replacement is being considered, (2) obtain a signed statement listing all existing life coverage being replaced, (3) notify the existing insurer so it has a chance to contact the client and conserve the business, and (4) deliver the new policy with an intact free-look and refund right. Skipping the notice is a regulatory violation on its own, even if the coverage sold was reasonable.
The stent is a separate problem: submitting a health question blank while knowing the answer supports a finding of dishonest conduct and exposes the agent to a fraud claim by the insurer. The correct approach was to disclose the history, let the insurer rate the case, and then compare keeping or converting the term against the cost and the restarted contestability period.