In the context of purchasing new life insurance, when is it considered a replacement transaction?

A replacement transaction in life insurance typically refers to situations where a new policy is issued that effectively replaces an existing policy. This generally occurs when the policyholder is switching from one insurer to another or changing the existing coverage type.

In this context, the correct answer is associated with when a policyholder changes the insurer. This indicates a deliberate switch from one life insurance company to another, which often requires the new insurer to evaluate the old policy and understand whether or not it will be retained or canceled as part of the new application process. The replacement could involve different terms, coverage amounts, or premium structures.

The other options do not directly encapsulate the essence of replacement. Citing scenarios such as failing to pay premiums or borrowing against policy value does not align with the concept of "replacement" in the context of insurance, which focuses on issuing a new policy that effectively takes the place of the old one.