Insurance Policy Replacement: Complete Guide 2026

When does a replacement occur?

Under the Regulation respecting the pursuit of activities as a representative (D-9.2, r. 10, ss. 18 to 22), a replacement occurs when taking out an insurance of persons contract is likely to result in the termination, cancellation or reduction of benefits of another insurance contract. What matters is the link to a new contract:

• Cancellation or abandonment of a policy to purchase a new one • Reduction of benefits (amount, coverage) of an existing policy because of the new contract • Surrender of a policy's cash value to fund the new one • Enrollment in a group contract that terminates or reduces an individual policy. Not replacements: a mere modification of an existing contract (s. 19) and the replacement of an individual annuity, including an insurer's capitalization contract (s. 18).

Even if the client initiates the replacement, the advisor has the same documentation and disclosure obligations.

Advisor obligations

When a replacement occurs, the advisor must:

1. Complete the replacement notice (Schedule I) before or at the same time as the application (mandatory). 2. Prepare a detailed comparison of the old and new policies. 3. Document both the advantages AND disadvantages of the replacement. 4. Inform the client of the risks: loss of surrender value, new contestability period, possibility of refusal or higher premium. 5. Advise the client not to cancel the old policy until the new one is in force. 6. Give the client a copy of the signed notice no later than 5 business days after the application is signed. 7. Send the notice to the existing insurer within 5 business days of signing the application (and a copy to the new insurer).

Failure to meet these obligations is a serious ethics offence.

Churning and twisting

Churning (also called twisting) consists of inducing a client to replace a policy primarily to generate a new commission, without any real benefit to the client.

Indicators of churning: • Repeated replacements with the same client • Replacement of a recent policy (less than 2–3 years old) • New product similar to the old one with no demonstrable advantage • Absence of documentation justifying the change • Loss of accumulated surrender value or policy guarantees

Churning is a serious offence that can lead to suspension or revocation of the practice certificate, in addition to civil liability.

When replacement is justified

A replacement may be in the client's interest in several situations:

• Significant premium reduction for equivalent or better coverage • Material improvement in coverage (better disability definition, more conditions covered) • Change in the client's situation requiring a different product • Consolidation of multiple policies into one to simplify management • Existing insurer in financial difficulty

Even when justified, the replacement must be documented with a full comparison and the replacement notice form.

Frequently asked questions