The change of insured provision or rider is an attractive option in business insurance applications such as key person insurance or buy/sell funding. It is a special form of change of plan provision that essentially permits the policyowner to exchange a policy on one life for a similar policy on another life with evidence of insurability. The key attraction is that this type of policy exchange is less expensive than terminating the old policy and acquiring a new policy. It avoids surrender charges or fees on termination of the old policy and generally avoids most of the new issue charges and commissions that the policyowner would otherwise pay on the new policy. Insurers base the premium for the new policy on the age and underwriting class of the new insured for the same death benefit as in the old policy. In general, the new policy will continue the change of insured rider and other riders may from the old policy. The company usually will charge an additional premium for the change of insured rider, but if the probability of changing insureds is relatively high, the premium cost usually is much lower than the cost of terminating old policies and acquiring new policies when changing insureds.
Reproduced with permission. Copyright The National Underwriter Co. Division of ALM