Advantages to Replacing A Life Policy
- Life insurance rates may have gone down
- The insurance company that issued the original policy maybe going under
- Disappointed with the service of the agent that sold you the policy
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A newer life insurance policy may have features or benefits that weren't available when the old policy was written
Disadvantages of Replacing A Life Policy
- Cash value built up in the original policy may be applied to the new life insurance policy's first year expenses, including commissions
- The new policy will have a new two year contestability period
- You may have to pay early surrender charges
- Your old policy may allow you to purchase more coverage
- If your health has deteriorated, you may get higher rates
- The new insurance company may have a poor financial rating
- You may pay income taxes when replacing a cash value policy
- Your cash value may be reduced because of higher expenses
- Higher interest rate projections may be used on you
- It may be cheaper if you can add to your current policy
- A new suicide clause (usually two years) begins
- A new contestable period begins
- If you cancel your old policy, you may not follow through and get a new one
- Your old contract may have lower premiums than a new one
The Internal Revenue Service allows you to exchange an insurance policy that you own for a new life insurance policy insuring the same person without paying tax on the investment gains earned on the original contract. This can be a substantial benefit. Because this is governed by Section 1035 of the Internal Revenue Code, these are called "1035 Exchanges."
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