Whether for life, sickness or any other type of insurance, your needs can change and you may have to cancel your current coverage or replace it with new coverage. For example, if you get married or have children, your life insurance may no longer meet your needs.
If your needs change over time or due to life events, your insurance representative may suggest that you replace your insurance contract. You’ll need to ensure that your new insurance contract suits your needs better than the contract you have now.
First, your representative must try to maintain your existing insurance contract. This means that he cannot suggest replacing your contract before he has fully examined it in order to understand your current coverage and your needs.
If after examining your contract your representative recommends that you change or modify it, he must explain why you would be better off with a new contract. He must also explain the weaknesses in your current contract.
Notice of Replacement
When your representative gives you a new insurance contract, he must also give you a document called a “Notice of Replacement.”
This notice is designed to help you make an informed decision about your insurance contracts. It must provide a full comparison of your existing contract and the contract proposed by your representative. It must also contain all information available about your new contract and explain the reasons for the change.
Replacing several contracts with one contract
If the contract proposed by your representative replaces more than one of your existing contracts (e.g., life and disability insurance), the representative must give you a notice of replacement for each contract to be replaced.End of the insight
Are you making the right decision by replacing your contract? Make sure that you understand the notice of replacement. If necessary, ask your representative questions. For example, ask him to explain the advantages and disadvantages of the new contract.
Risks of replacing a contract
Before replacing an insurance contract, you need to know what risks are involved. Here are a few things to keep in mind:
When an insurance contract has been in force for two years, an insurer cannot refuse to pay compensation when a beneficiary files a claim.
Take life insurance, for example. If you die within two years of the date on which the new contract comes into effect, the insurer may refuse to compensate your beneficiaries if information about your health or lifestyle was incomplete, inaccurate or omitted. The same is true for the suicide clause.
After two years, the insurer can no longer contest the contract.
However, it could reduce the compensation it pays out, for example, if, as a result of inaccurate, missing or omitted information, insufficient premiums were paid.
If necessary, ask your representative to explain these clauses to you.
Important! This coverage is cancelled when you replace an insurance contract. You then have to wait two more years before you can take advantage of the coverage under the incontestable clause.
To prevent fraud, most life insurance contracts contain a suicide clause. This clause states that if a person purchases a life insurance contract and commits suicide less than two years after signing the contract, compensation is not paid to the beneficiaries. This period returns to zero when you replace your life insurance contract.
- Do not cancel your former contract before receiving your replacement contract and reading through it carefully to ensure that it is suitable.
- If you are satisfied, sign it. You can then cancel your former contract. Your representative can help you with this. If you prefer to do it by yourself, contact your former insurer.
How to replace a contract
Here are the steps to follow if you agree to replace your contract:
- You and your representative must sign the notice of replacement.
- The representative must also prepare an insurance application (proposal). This document is your official request to the insurer for coverage.
- Read through the application carefully to make sure that you understand it. The information in the application must be accurate; otherwise the insurer could contest a request for compensation (claimIn the field of insurance, a claim is a request that an insured submits to their insurance company to receive an insured amount further to a loss.).
- Once the application is signed and sent to the insurer, you must wait for confirmation that the insurer has agreed to insure you. If the insurer does agree to insure you, you will receive your new insurance contract.