Replacement

A replacement occurs when a new life insurance policy is purchased with the intent to lapse, surrender, convert, or borrow against an existing policy. Insurance regulators require agents and carriers to follow specific replacement procedures to protect consumers from unnecessary policy exchanges driven by agent commission interests. These procedures typically include a written comparison of the old and new policies, a disclosure of costs and benefits, and a waiting period during which the consumer can reconsider. Not all replacements are harmful — sometimes replacing an old, expensive policy with better-value coverage is appropriate — but consumers should carefully compare guaranteed values, contestability period restart, and any lost benefits.