31 January 2014 0 Comments

When Replacement Is Not Bad

a good planIn my last entry I described “twisting” as an unethical procedure used by insurance agents causing you to replace an existing policy with a new one.  But, not all policy replacement is bad.  There are times when it makes sense to replace an existing life insurance policy with a new one.  As long as the agent informs you of all the pros and cons of replacing (remember, there is always at least one con) and it’s in your best interest to replace, then said replacement is not considered twisting.  Here are a few instances when it may be in your best interest to replace an existing policy with a new one:

  • You want to increase the amount of your term insurance.

You can’t increase the face amount on a term policy that has been in force for more than a few months.  So, to get more term insurance you will be purchasing a new policy.  Since the premium-per-thousand tends to be a little less on a larger policy, it might make more sense to start all over again with a single policy for the total amount of insurance you want.

  • You want to increase the duration of your term insurance.

Perhaps you originally bought 10 year term because that’s all you could afford.  Now, you have more available cash and you want to extend your coverage for 20 more years.  Once again, this can’t be done by amending your current policy so you will replace it with a new 20 year term policy.

  • You originally purchased a whole life policy, but have consistently taken out policy loans to pay the premium.

Since you now must pay both the premium and the interest on your loan, it might make sense to replace this policy with a guaranteed death benefit Universal Life Policy.  Whether this works for you depends greatly on future dividends on your current policy.  Don’t make any change without getting an in-force illustration on the current policy.

  • Your current Universal Life (UL) Policy requires a huge increase in premium or it will lapse.

Your older UL policy’s original premiums were calculated based on the high interest that was then being credited to the policy.  But that interest crediting has dropped by 50% or more and you have been advised that the premium you have been paying will double and keep increasing in the future.  Newer UL policies often have a greatly improved premium guarantee and should be investigated as an alternative.

In coming editions I’ll cover some specifics of the above transactions, 

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