C4-L3-P8

When a Replacement May Be Appropriate

At times, recommending that one policy be canceled and replaced by another is best for the client.

Situations in which replacement may be appropriate:

1. The client’s health has improved.
   
   For instance, a man diagnosed with childhood leukemia at an early age survived; however, because traces of the disease were evident for the next 30 years, the insurance he was able to obtain was rated steeply. Finally, at age 45, he was declared completely free of the disease. In this case, a policy he could obtain at age 30 may no longer be appropriate for his needs, especially if he can obtain new coverage at a rate half that for the existing policy. Of course, it might be possible to convince the existing carrier to reconsider the rating and reduce the premium.
   
   
2. A policy that was issued at a young age and features a small death benefit.
   
   This type of policy with an inappropriately large premium no longer meets the client’s needs. (This is a very common occurrence). Old Endowment policies are often an example.
   
   
3. A female client originally was underwritten with unisex rates in compliance with the laws of her state.
   
   When she moves to another state, one that allows sex-based rates, it may be possible that a new policy will reduce her coverage cost.
   
   
4. The purpose of the replacement is to undo a bad replacement.
   
   For example, this may occur when a middle-aged client who had whole life insurance was induced to replace this policy with term insurance. The recommendation to replace the temporary coverage with a permanent policy may indeed be appropriate (quite common).

The above examples do not automatically warrant replacement.

It is crucial to replace policies conscientiously!

Replacement is a serious action. Before recommending replacement, even if it appears to be ethical at first glance, producers should make sure it is in their clients’ best interests to do so.