When in Doubt... As a rule, producers should avoid replacement unless it is obviously so appropriate that they cannot in good conscience think it best to leave an existing policy in force. Most of all, they should not look for opportunities to replace existing coverage. They never should initiate replacement to generate commissions for themselves.

Indeed, it may sometimes be advisable to replace a client's policy with another. However, the litmus test must be how well the action serves the best interests of the client, not the producer. All too often, replacement-especially when cash value policies are involved-is not clearly in the client's favor. Before executing a policy replacement, producers should make sure it is appropriate. Also, they should not assume that it is automatically acceptable to replace a policy with another one from the same company.

In most situations, reports the National Association of Insurance and Financial Advisors in its consumer publication Points to Ponder If You're Considering Replacing Your Life Insurance, "the life insurance you already own is your best buy." This generally is true for the following reasons:

• Changes in health and age. The risk always exists that the client has become uninsurable or insurable only at a higher rate. Even if the client's health is sound, a whole life policy purchased at age 20 almost always carries a lower premium than one purchased at age 48.
• New contestable period. A company's right to challenge a death claim or other information, usually within two years from the date of policy issue, may expose the client to the risk of dying without coverage or may subject beneficiaries to legal conflicts.
• New policy fees and expenses. The new policy often comes with new sales loads, policy fees and other expenses, which may mean it could take years before the client breaks even in terms of total policy values.
• Possible loss of policy upgrades or automatic improvements that may meet the policyowner's objectives. Many companies are introducing unilateral policy improvements to existing policies. These also should be considered before a replacement is initiated.
• Loss of Grandfathered Rights. For example, if the original policy was purchased when tax laws were more favorable, replacement may entail the loss of "grandfathered" income tax benefits.

When a Replacement May Be Appropriate. At times, recommending that one policy be canceled and replaced by another is best for the client. Here are some situations in which replacement may be appropriate:

• The client's health has improved. For instance, a man diagnosed with childhood leukemia at an early age survived; however, because traces of the disease were evident for the next 30 years, the insurance he was able to obtain was rated steeply. Finally, at age 45, he was declared completely free of the disease. In this case, a policy he could obtain at age 30 may no longer be appropriate for his needs, especially if he can obtain new coverage at a rate half that for the existing policy. Of course, it might be possible to convince the existing carrier to reconsider the rating and reduce the premium.
• A female client originally was underwritten with unisex rates in compliance with the laws of her state. When she moves to another state, one that allows sex-based rates, it may be possible that a new policy will reduce her coverage cost.
• A policy that was issued at a young age and features a small death benefit for an inappropriately large premium no longer meets the client's needs.
• The purpose of the replacement is to undo a bad replacement. For example, this may occur when a middle-aged client who had whole life insurance was induced to replace this policy with term insurance. The recommendation to replace the temporary coverage with a permanent policy may indeed be appropriate.

The above examples do not automatically warrant replacement. It is crucial to replace policies conscientiously! Replacement is a serious action. Before recommending replacement, even if it appears to be ethical at first glance, producers should make sure it is in their clients' best interests to do so.

Please make sure to do the practice test pertaining to Chapters one, two three, & four. Do them until you understand the material and are achieving a score of high 80s or low 90s. Please do not rush through this course. Take your time.

The practice tests, video library, & Tuesday night Webcast are invaluable!!!