The NAIC Replacement Model Regulation is a standardized framework that governs the replacement of existing life insurance and annuity contracts with new policies. Its purpose is to protect consumers from unsuitable or harmful replacement transactions that could result in loss of benefits, surrender charges, new contestability periods, or higher overall costs. The model defines what constitutes a replacement, outlines disclosure requirements for both the existing and proposed coverage, and mandates comparison of key features, costs, and surrender values. It also specifies responsibilities for insurers and producers, including the need to notify existing carriers of potential replacements and to maintain records demonstrating that the replacement is in the consumer's interest. Once adopted by a state, the NAIC Replacement Model Regulation becomes a core part of its market conduct and consumer protection framework.

In practice, the NAIC Replacement Model Regulation drives the replacement forms and procedures that advisors must follow when recommending a new policy in place of an existing one. Producers provide replacement notices, comparison summaries, and signed acknowledgments that outline pros and cons, including surrender charges, lost riders, and new incontestability periods. Carriers use these documents to evaluate whether replacements are suitable and to monitor patterns that could signal churning or twisting. Compliance departments train agents on when replacement rules apply-for example, when using 1035 exchanges, internal rollovers, or external transfers-and review files during audits. Advisors who understand the NAIC Replacement Model Regulation can more effectively document why a change is beneficial, such as improved guarantees, lower costs, or better alignment with current goals, while avoiding problematic replacements that might trigger regulatory scrutiny.