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  • Why should I consider a life insurance policy replacement?
  • August 2, 2013
  • Tony Steuer

    By Tony Steuer, CLU, LA

    A life insurance policy is a financial asset, which needs to be reviewed on a regular basis to ensure you are getting the value you expect, in exchange for the premium dollars you pay to the life insurance company.

    Things change in the real world, which could leave your policy vulnerable. Policies could be affected by a change in your personal preference, the issuing company’s financial condition and increased competition in the insurance industry.

    Also, life insurance is a complex financial tool that provides you with financial leverage.

    Meaning, there’s no substitute for life insurance; it is unique in its ability to provide a self-completing financial plan, should the insured person die unexpectedly. Life insurance can be used to replace lost income, pay the federal estate tax, and provide additional funds.

    Consult with your life insurance adviser and insurance before replacing your pre-existing policy with another one.

    Depending on many factors, replacing an in-force life insurance policy can either be a very good or very bad decision.

    Traditionally, the viewpoint within the life insurance industry is that replacing an existing life insurance policy with a new one is generally not in the policy owner’s best interest.

    Information provided here is intended to aid you in the replacement decision-making process; but keep in mind, that your individual situation is unique and there is no one-size-fits-all solution.

    In the simplest of terms, replacement means discontinuing one life insurance policy to purchase another one. This may be internal (i.e., replacing it with a new policy from the same company) or external (i.e., replacing it with a policy from a different company).

    However, there’s a very fine line dividing replacement (which is permissible under state insurance law) from twisting (which is prohibited by state law).

    Twisting involves replacing a life insurance policy primarily for the agent’s benefits, to earn a new agent commission.

    By definition, twisting is the practice where an agent induces a policy owner through misrepresentation to discontinue an existing life insurance purchase and purchase a new one with the proceeds.

    The legal meaning of the word “replacement” varies from state-to-state, which is why it is a good idea to become familiar with your own state’s definition before making a decision.

    To locate your state’s insurance code and replacement regulations, visit the National Association of Insurance Commissioners website.

    Some state insurance departments are well funded, which leads to better staff and ultimately more regulations. In general, the larger state insurance departments are better equipped to enforce the replacement regulations, but this is not always the case.

    If are considering replacing your current policy with a new one, please seek out assistance from your life insurance adviser or email me at

About Tony Steuer

Noted insurance author Tony Steuer has spent over 25 years in the life insurance industry. Steuer’s leadership roles include serving on the California Department of Insurance Curriculum board and the National Financial Educator's Council Curriculum Advisory Panel as well as having served as President of the San Francisco Chapter of the American Society of CLU & ChFC, President of the leading Life Insurance Producers of Northern California, and as a board member of the San Francisco Life Underwriters Association. Mr. Steuer is the author of Questions and Answers on Life Insurance: The Life Insurance Toolbook, The Questions and Answers on Life Insurance Workbook and The Questions and Answers on Disability Insurance Workbook - the first two were awarded the “Excellence in Financial Literacy (EIFLE) Award from the Institute of Financial Literacy. Steuer holds a Chartered Life Underwriter (CLU) designation and also holds the Life and Disability Insurance Analyst License, a designation that is held by less than thirty people in California.

Creative Commons License
Questions & Answers on Life Insurance by Tony Steuer, CLU, LA, CPFFE is licensed under a Creative Commons Attribution 3.0 Unported License.

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