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Replacing A Life Insurance Policy Or Annuity With A New One

Some consumers want to have more than one life insurance policy, or more than one annuity. Changing your current insurance or annuity to buy a new policy may not be a good idea. Instead, you may be able to make changes in your current policy which would meet your needs.

Table of Contents

What Does It Mean to Replace My Policy or Annuity?

A replacement happens when you buy new insurance or a new annuity and:

  • you stop paying premiums on your old policy or annuity;
  • you surrender your old policy or annuity to the insurance company and use the money you receive to pay the premiums due on the new policy or annuity;

Important: if you do this, you will no longer have your current policy or annuity

  • you borrow against the old policy or annuity, to pay the premiums due on the new policy or annuity;
  • you assign your old policy to the new insurer.

If you do this, your new insurer, not you or your beneficiaries, would get the benefits .

What can I expect if I replace a current policy or annuity?

  • There are often additional start up costs, for example, expense sales and charges.
  • If you surrender your current policy or annuity, you may have to pay surrender costs or penalties.
  • You may owe taxes on the money you are moving from one policy or annuity to another, or you may face a tax penalty.

How can I tell if the new life insurance policy is better than the old policy?

  • Is the amount of insurance the same, and does the new insurance include the same provisions, such as "riders"?
  • How long will I have to wait before the cash surrender value on the new policy is large enough to support a loan?
  • What are the guaranteed interest rates?
  • Are the policy charges and expenses on the new policy higher or lower?
  • Are the premiums on the new policy level or are they likely to go up as I get older?
  • Will I need to have a new medical examination?
  • Will I start a new two-year period during which the company can refuse to pay in case of suicide or material misrepresentation?
  • How will I pay for the new policy, once the dividend money from the old policy is all used up?

How can I tell if the new annuity is better than the old annuity?

  • How do the interest rates compare?
  • How do the benefit rates that are used to determine payouts compare?
  • Are the payout options the same or better?
  • Are the charges and expenses on the new annuity higher or lower?
  • What are the surrender charges for the new annuity? How long before they decrease?
  • What are the guaranteed interest rates?

 

Watch out for agents "churning" policies. This is a fraudulent practice in which insurance agents mislead consumers into giving up the cash value, or taking loans against current life policies to buy new policies with a new company or with the same company. Since agents receive a commission when a new policy is purchased, the agent "churns" policies to make more money for himself or herself.

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