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Insurance Policy Replacement: Complete Guide 2026
Policy replacement is one of the most closely monitored acts by the Chambre de la sécurité financière. Disclosure and documentation obligations are strict.
When does a replacement occur?
A replacement occurs when a client terminates an existing policy (or substantially modifies it) in connection with the purchase of a new policy. The definition is broad:
• Cancellation of a policy to purchase a new one • Reduction of the insured amount on an existing policy • Conversion from one type of policy to another • Withdrawal of surrender value to fund a new premium • Use of a settlement benefit (surrender) to fund a new policy
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 form (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. Submit the notice to the existing 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
Is the replacement form always mandatory?
Yes, whenever a replacement occurs within the meaning of the regulation. Even if the client initiates the change, the advisor must complete the form, compare the policies, and document the justification.
What are the sanctions for churning?
Churning can result in: a reprimand, a fine, a temporary or permanent suspension of the practice certificate, and civil liability to the client for damages suffered. It is one of the most severely sanctioned offences.
Can the client cancel the replacement?
Yes. The client has a rescission period (generally 10 days) to cancel the new policy without penalty. In addition, the advisor should recommend keeping the old policy in force until the new one is accepted.
How do you document a justified replacement?
Prepare a written comparison of both policies (premiums, coverage, exclusions, surrender value). Clearly document WHY the change is in the client's interest. Retain meeting notes and the signed replacement notice form.
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Résumé en français :Guide sur les règles de remplacement de police au Québec. Couvre les situations déclenchant un remplacement, les obligations de divulgation obligatoires, le formulaire de préavis de remplacement, l'interdiction de barattage (churning/twisting), les remplacements justifiés et les conséquences disciplinaires.