According to the life insurance replacement regulations, which of the following would be an example of policy replacement?

Policy replacement involves a situation where an insured replaces or exchanges an existing life insurance policy for another one. This typically occurs when the old policy is terminated or its benefits are effectively replaced with a new policy that offers different terms or coverage.

The correct example of policy replacement is when a policy is reissued with a reduction in cash value, which indicates that a new policy is being issued that alters the terms or replaces the coverage of the previous policy. This action typically requires adherence to specific regulation guidelines to ensure that the policyholder is fully informed about the implications of the replacement.

In contrast, making an adjustment to the existing policy might involve changes such as benefit increases or maintaining coverage without terminating the original agreement, rather than replacing the policy itself. Adding a new rider to the current policy simply enhances the existing coverage without replacing the underlying policy. Switching payment methods keeps the policy intact and does not involve replacing any coverage, merely changing how the premium is paid. Therefore, the reissue with a reduction in cash value clearly reflects a situation that falls under policy replacement regulations.