You will be able to decide when replacing an existing policy is justified and document the comparison.
Siew Lan brings a folder to her review. Inside is a critical illness policy she bought fifteen years ago and a newer plan another representative showed her at a roadshow last month. "He said the new one covers more illnesses and I should switch," she says. "What do you think?" The new plan does list more conditions. It would be easy to agree, write the application and take the case. It would also be easy to do her real harm.
Replacing an existing policy with a new one is one of the riskiest things you can recommend, because the client can lose things that are hard or impossible to get back. Three costs come up again and again.
Surrender losses. If the old policy has a cash value, surrendering it may return less than the client has paid in, especially if the policy is relatively young, and the client starts again on a new policy with its own early-year costs. Even where the old policy has built up value, giving it up means losing whatever it would have paid in future.
New waiting periods. Many policies have waiting periods at the start, during which some claims are not paid. The old policy's waiting periods ended years ago. A new policy starts the clock again, so for a period the client may be less protected than before.
Loss of cover for existing conditions. This is often the largest cost. When the client bought the old policy, they were underwritten on their health at the time. Since then they may have developed conditions. A new policy is underwritten on their health now, and those conditions may be excluded, loaded with a higher premium, or the application declined. Siew Lan was diagnosed with high blood pressure eight years ago. Her old policy covers related illnesses because she had no diagnosis when she bought it. A new policy might not.
These are why replacement cases get extra scrutiny from firms and why MAS expects representatives to make clients aware of the possible disadvantages of switching. Your firm will have its own process for it.
Before you suggest a switch, or agree with someone else's suggestion, put the old and new policies side by side on the same page. Compare them on four things.
Cover: what each one pays, for which events, with what definitions. "More illnesses" means little if the definitions for the common ones are narrower, or if the extra conditions are rare. Compare the conditions that matter for this client.
Cost: the premium on each, whether it is fixed or can be revised, and for how long it is payable. Add any surrender loss from giving up the old policy.
Exclusions: what each excludes, including any new exclusion that would apply to the client because of their health now.
Health underwriting: what the client's current health means for the new application. You often will not know until the insurer has assessed it, which is a reason never to cancel the old policy before the new one is in force and its terms are known.
Wei Ling's comparison for Siew Lan shows the new plan lists more conditions, but the definitions for the three most common critical illnesses are similar. The new premium is higher at Siew Lan's age. Her high blood pressure would need to be declared, and might lead to an exclusion for related conditions. Her old policy has none of those problems.
Your firm will have a replacement process: specific forms, a comparison the client signs, sometimes supervisor review. Follow it every time, including when the client asked for the switch themselves. These cases are looked at closely in file reviews, and a replacement without the right forms is very hard to defend even if the switch was in the client's interest.
Record the comparison, your conclusion and the client's decision in their own words. If the client switches against your advice, lesson 4.4, When the client wants something you did not recommend, covers how to record it.
Sometimes a switch is justified. The old policy may be genuinely poor value, the client's needs may have changed so that it no longer fits, or the new policy may fill a real gap without giving up anything that matters. When that is the case, the comparison will show it clearly.
When it does not, the answer is to keep the existing policy. If you cannot point to a clear benefit to the client that outweighs the costs above, there is no case for switching. You may still recommend adding cover alongside the old policy, which brings its own questions of need and affordability, but that is a different recommendation from replacing it.
Wei Ling tells Siew Lan: "Your current policy covers the illnesses that matter most for you, and it already covers conditions related to your blood pressure. A new one might not, and it would cost more. I'd keep it. If you're worried there are gaps, let's look at what they are and whether something alongside it makes sense." Siew Lan keeps her policy. A year later, she sends her sister to Wei Ling.
The comparison is the heart of every replacement decision, and it only works if both policies are laid out the same way, line by line. In the activity below you build one for a practice case and write a short conclusion that a reader could follow without having been in the meeting.
Build a side-by-side comparison for a practice replacement case and write a one-paragraph conclusion for or against switching.
Junxiong-WFG Organisation is an authorised representative of AIA Financial Advisers Private Limited (Reg. No. 201715016G).