Let’s face it, nothing is forever.
Life has a funny way of changing things just when you think you have it all figured out. That’s why you may find that, from time-to-time, some of your clients may need to consider replacing their policy with one that better fits their current situation. Let us help you navigate the process smoothly.
Why do people replace policies?
There are two primary reasons why a client might want to consider replacing their current insurance policy:
- To save money: A new policy might be cheaper.
- To better suit their current needs: Their needs have changed, requiring different coverage.
When is a sale considered a replacement?
A “replacement of a contract of life insurance” happens when a client buys new life insurance, and as a result, their current insurance policy is:
- Terminated in some way or reduced in benefits
- Changed to a paid-up insurance, continued as extended term insurance or under automatic premium loan
- Modified to release more than half of its cash value
- Borrowed against for more than half of its cash value
But it doesn’t count as a replacement if your client:
- Gets a new policy with the same insurer under a conversion option
- Switches to an annuity
- Replaces their current coverage with group insurance
Required documentation:
Before replacing an insurance policy, the proper documentation must be completed, including the Life Insurance Replacement Declaration (LIRD). This is the form that the representative must complete when the situation involves replacing an insurance contract and includes an explanation of the advantages and disadvantages of replacing your life insurance policy with a new policy (EXP).
Note that Quebec requires a specific form: Prior Notice of Policy Replacement.
Advisors must follow the correct replacement procedure for their province and must not encourage clients to cancel existing policies improperly. It is your responsibility to ensure the following:
- A complete needs analysis is undertaken
- All sections of the EXP and LIRD are filled out with detail
- The policy owner understands the impact of replacing their policy and signs the form to acknowledge their understanding
- In addition, for Quebec, all initials are in place
- Copies are sent to the insurer of the previous policy, if required
- A policy review with the client upon delivery
- At this point, they can still change their mind and choose not to replace
It is good practice to regularly review their current policy with your clients to ensure that their needs are still being met and that no changes or additions are required for their coverage.
Reminder: Always check and follow the life insurance replacement procedure of the province(s) in which you are licensed.
Disclaimer
This article is intended for general information purposes only and should not be considered specific advice, nor is it a substitute for advice from a qualified professional. The article may contain information obtained from third-party sources. While reasonable efforts have been made at the time of publication to ensure that the contents of this article have been derived from reliable and accurate sources, including third party sources, ivari provides the information “as is” and ivari does not warrant the accuracy or completeness of the information contained herein.
Neither ivari nor its affiliates, officers, employees or any other person accepts any liability whatsoever for any direct, indirect or consequential loss arising from any use or reliance on the information or opinions contained herein.