Protecting the interests of life insurance and annuity purchasers by preventing unnecessary costs and/or fees to a consumer has long been a priority for both state insurance regulators as well as insurance carriers. When considering suggesting a replacement to a client who has an existing annuity contract or life insurance policy, ask yourself the following four questions to help assess whether a replacement may be appropriate:

  1. What are my client’s current financial needs and objectives?
  2. Are my client’s current financial needs and objectives being met with his existing annuity contract or life insurance policy?
  3. Has anything in my client’s life changed significantly since he purchased his life insurance policy or annuity?
  4. If so, is there a more suitable product that can help my client meet his needs and objectives?

After you have established and identified a potential product to recommend, the next step is to gather information regarding your client’s existing product and compare the product’s benefits and features to those of the product you are recommending as a replacement. When comparing the existing product with the potential replacement, consider the following:

  1. What are the current caps, rates and index strategies available on your client’s existing annuity (if applicable) and how do they compare to the new product?
  2. Is income an objective for your client? If so, does the existing annuity have an income rider
  3. If the existing annuity has an income rider, how does the income account value increase? How does the contract pay out? And, how does the existing income rider (if applicable) compare to the income rider of the replacement, i.e., what is the amount of income from each policy at the time your client anticipates needing income?
  4. When a death benefit rider is part of the existing annuity, similar information should be gathered. How does the death benefit value increase? Does your client own other products that provide a similar or greater death benefit? If not, what circumstances have changed for the client so that a death benefit is no longer an objective?

NOTE: When features of the replacement product’s income rider are based on market performance, either part or in full, use only guarantees in your comparison. If additional information is requested by a carrier to support the replacement, the insurer will want to see a comparison of guarantees only.

Lastly, when replacing a life insurance policy with an annuity, carriers will want background information relating to the questions above, as well as whether there are any surrender charges for replacing the life insurance policy, and the amount of the death benefit the client will no longer have access to.

Final thoughts for your consideration:

  • If the client’s existing annuity contract or life insurance policy was issued less than one year ago, most carriers will not consider the replacement. Some carriers will not consider a replacement less than two years old, and some still that will not consider a replacement if the existing annuity contract or life insurance policy is less than three years old.
  • If a surrender charge remains on your client’s existing annuity contract or life insurance policy most carriers will not accept the replacement if the bonus on the replacement does not cover the amount the client will pay in surrender charges.
  • If your client surrendered an existing annuity and the money was put in his bank account, that is still considered a replacement until the money is outside an annuity or life insurance product for one year and all applicable replacement information is required by the carrier. This is an industry standard and not specific to any given carrier.

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