About Replacing Life Insurance Policies!
10/29/2020… Get the best insurance agent training. On one of the Facebook insurance agent training groups, there is an agent telling people how he writes a 30-year term for his clients. Then he replaces the life insurance each year to sell a lower premium 30-year term policy. And he does it just so that he will earn a new commission that year. When you are selling a new life insurance policy, just to make a new commission – it is wrong! It is bad for your clients, the insurance company, and the industry! And it is called churning!
Churning is when an agent replaces a life insurance policy for another insurance policy with no changes to the coverage! Agents often churn policies just to get an new commission for the new policy that they swap in. State law has restrictions and additional rules on agents who want to replace coverage. This practice is illegal in most states and is also against most insurance company policies.
Churning (or replacing) a life insurance policy should be your last resort. And, it should only be done when it is in the client’s best interest. Yes, if you think hard enough, you can always find a reason to switch your client to a new life insurance policy. But, is it the right thing for you to do for your client?
Replacing Life Insurance Policies Is Bad For The Client…
Replacing life insurance is bad for your client because the 2-year contestable period will start over. So, if they die within 2 years, then the insurance company could contest the claim based on any misrepresentations (mistakes or omissions) made on the application. The suicide exclusion will also start over! This means that a company can deny the claim if the insured’s death is a result of suicide within the first two years.
Then most cash value policies, such as whole life, or universal life have surrender fees. These fees will decline over time. But, when you replace a policy your client will start over with a new surrender period. Plus, when you replace a policy that is within the surrender period, your client will pay a fee to transfer the cash value from one policy to another.
Remember, in many cases, your client will go through underwriting and another physical exam to get a new policy. So, if their health has changed they could end up paying more or they could be declined.
Then you will want to consider… Is the new company as financially sound as its current company? Is their performance history as good or better than their current company?
As you can see there is a lot more to replacing and selling a new life insurance policy than just comparing illustrations, benefits, and riders.
Replacing Life Insurance Policies Is Bad For The Company And Industry…
When you replace a policy there is a cost to the company for underwriting, exams, commissions, etc. The higher the company lapse rate, then the more the company is spending per policy. And it takes years for a company to recoup those costs. This means if they lose a lot of policies in the first few years, then the cost of insurance will go up for everyone.
Over the past 30 years, the industry has had a lot of problems and a lot of complaints about agents churning, replacing, and piggybacking life insurance policies. Because of that, there are a lot of government agencies trying to regulate our industry. That is why the NAIC has added a lot of regulations about how we handle replacements.
Each state insurance department has its own rules and procedures for replacing life insurance. But they must include the NAIC minimum requirements that all insurers and agents must follow when they replace a policy.
The procedures require that you to inform the the client of the implications of a replacement. (what are the drawbacks) You must submit a notice of replacement signed by the client and the agent to the replacing insurer… And then they will send it to the existing insurer. (the company being replaced) And you must provide your client with a hard copy of all sales materials that you used leading up to the replacement.
The insurer is required to show that the state’s replacement procedures are in place. Including insurance agent training and a system to monitor the replacement activities of all producers.
Get The Best Insurance Agent Training To Do What Is Right For Your Client!
If you decide that replacing life insurance is in your client’s best interest, then you need to take the time to find the best possible policy for them. You want to make sure it is worth all of the trouble.
By the way, when you take the time to get the best insurance agent training you need to do a good fact-find… Then you won’t even be tempted to replace an existing life insurance policy. Because you will learn how to help people to find the money to get what they need and want… even now!
“I urge anyone in the financial services business to get involved with the Insurance Pro Shop. Whether it’s from Lew, Jeremy, or Alex the training you will get you on the way to reaching your goals as a professional in the industry. They don’t “sugarcoat” what they teach. They are straightforward with their approach to training. What I’ve learned is that there are some “basics” to learn in this business. And if you don’t learn them you’ll probably experience what most professionals in the industry experience; mediocrity. Lew, Jeremy, and Alex at the Insurance Pro Shop will teach you the basics at attracting the right prospects and how to ask the right questions to help people with financial problems.” John Dandridge, IL (11 years in the business)
“I think anyone who has experienced Insurance Pro Shop in any capacity knows the first class training that Lew and Jeremy Nason offer agents, both new and experienced. But the one thing that makes the Nason’s special is how much they care about not only us, as THEIR clients… But OUR clients as well. The Nasons will not only help you increase your income. But if you apply what they teach you, you will truly become a trusted advisor of your community. You will also learn to sell the RIGHT way. The Nasons are wonderful people and I am very fortunate to have met them!” Oliver Chamberlain, PA (12 years in the business)
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