An example of life insurance policy replacement would be which of the following?

The correct answer highlights a common scenario in the insurance industry known as policy replacement. Specifically, cash surrendering an existing life insurance policy means that the policyholder is terminating their current policy and receiving its cash value. The funds from the surrendered policy are then typically used to purchase a new life insurance policy. This process is categorized as replacement because it involves discontinuing an old policy in favor of a new one.

Understanding policy replacement is crucial because it can have significant implications for coverage, premiums, and benefits. Often, new policies come with different terms and conditions, and there might be a waiting period for certain benefits to take effect. Additionally, regulations often require insurers to provide specific disclosures when a replacement occurs, emphasizing the importance of ensuring that the switch truly serves the policyholder’s best interests.

The other options do not represent life insurance policy replacement. Transferring a health policy to a new insurer pertains specifically to health insurance and is distinct from life insurance. Extending the term of an existing policy or converting a term policy to a whole life policy involves modifications to the existing policy rather than replacing it, which maintains continuity rather than creating a new contract. Thus, only the cash surrender and purchase scenario clearly exemplifies the concept of replacement in life insurance.