Buying life insurance is a very important step in proper estate planning. It is also a very complicated process. There are so many important questions that must be answered in order to make the right choice of life insurance products. One issue that is rarely discussed is life insurance replacement. What if you already have a life insurance policy from one company for the past 25 years, but have a friend at a different company who wants you to replace your current policy with a new policy with his company. Is it beneficial for a client to replace existing coverage?
All life insurance sales people have a fiduciary duty to their clients. The aim of every interaction should be for the benefit of the client. While many insurance sales people work in accordance with their clients’ needs, there are some who sell products just to make commissions at the expense of their client’s well being. There are some situations when replacing an existing policy may be beneficial, but in most cases, policies purchased years ago offer premiums and sometimes coverage that cannot be matched by a new policy.
Consider Mark Fergusson, who currently has an individual permanent life policy with Acme corporation purchased 29 years ago. If he was to replace that coverage today 29 years later, he would be getting a premium rating for a man who is 29 years older, and likely with some health conditions developed over time that would adversely affect his premium costs.
While it would be financially beneficial for the broker or agent to replace that policy with a new one and get a commission, Mark, the client is now with a policy where he must pay more dollars in premiums for less coverage.
Like anything else, it makes sense to ask around and do your due diligence before deciding to replace life insurance coverage. Get as many opinions from your local life insurance agents or brokers. Also feel free to reach out to me directly and I will be happy to guide you through the process of deciding if replacement is a good option for you.