South Carolina Life and Health Practice Exam

What requirement do "no loss no gain" laws impose on replacing policies?

1. Require higher premiums

2. Pay for ongoing claims under the replaced policy

3. Offer cash value immediately

4. Provide a grace period for payments

The correct answer is: Pay for ongoing claims under the replaced policy

"No loss no gain" laws are designed to protect policyholders when they replace an existing policy with a new one. The primary requirement under these laws is that ongoing claims must continue to be paid under the replaced policy. This means that if a policyholder has an existing claim at the time they decide to replace their policy, they should not financially suffer due to the new policy being enacted; the benefits of the previous coverage should remain in effect for those claims. This protects consumers from losing benefits or financial support from the original policy while transitioning to a potentially better or different plan. The rationale behind this requirement is to ensure that individuals do not find themselves in a situation where they are uncovered for claims incurred before the change of policies purely because of the replacement process. While cash value, grace periods, and potential premium increases can be relevant features in the context of insurance policies, they do not specifically align with the fundamental intent and protection provided by "no loss no gain" laws in relation to claims and policy replacement.