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Buying Life Insurance and Annuities in Massachusetts - Part Four

Should I Replace My Life Insurance Policy Or My 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.

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 .

Important Questions You Need To Think About:

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?
In recent years, the agents of a number of insurance companies were found to be "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.

Part Five