Decide when replacing an existing policy is justified, and write up the comparison.
Put the client's existing policy and the proposed new one on the same page, side by side, before you suggest a switch or agree with a switch someone else has suggested. Set both out the same way, line by line, so each item on the old policy sits next to the matching item on the new one. Every replacement decision depends on this comparison, and it only works if the two policies are laid out in the same format.
Replacement means giving up an existing policy and taking out a new one in its place. Adding cover alongside the existing policy is a different recommendation. Replacement is one of the riskiest recommendations a representative can make, because the client can lose things that are hard or impossible to get back. For that reason firms give replacement cases extra scrutiny, and MAS expects representatives to make clients aware of the possible disadvantages of switching.
Three costs of switching come up in case after case: surrender losses, new waiting periods, and loss of cover for existing conditions.
If the old policy has a cash value, surrendering it may return less than the client has paid in. This is most likely when the policy is relatively young. The client then starts again on a new policy with its own early-year costs. Even an old policy that has built up value will stop paying anything once it is given up, so the client also loses whatever it would have paid in future. Together, the shortfall and the lost future payments make up the surrender loss.
Many policies have a waiting period at the start, during which some claims are not paid. On the old policy these periods have already run out. A new policy starts them again, so for some time the client may be less protected than they are now.
Loss of cover for existing conditions is often the largest of the three. The insurer underwrote the old policy on the client's health at the time they bought it. A new policy is underwritten on their health today. Underwriting, as used here, is the insurer's assessment of the client's health at the time of application, and it sets any exclusions, premium loadings or a decline. A condition the client has developed since the first purchase may be excluded, may come with a higher premium, or may lead the insurer to decline the application.
Siew Lan (an invented example) brings a folder to her review. In it are a critical illness policy she bought fifteen years ago and a newer plan another representative showed her at a roadshow last month. That representative told her the new plan covers more illnesses and that she should switch. She asks Wei Ling, her own representative, what she thinks.
The new plan does list more conditions. Wei Ling could agree and write the application in a few minutes, but that could do Siew Lan real harm. 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.
Wei Ling builds a side-by-side comparison. The new plan lists more conditions, but for the three most common critical illnesses the definitions on both policies are similar. At Siew Lan's age the new premium is higher. Her high blood pressure would have to be declared on the application and might lead to an exclusion for related conditions. The old policy has no higher premium and no such exclusion.
Wei Ling explains to Siew Lan that her current policy covers the illnesses that matter most for her and already covers conditions related to her blood pressure, while a new one might not and would cost more. Wei Ling says she would keep it. If Siew Lan is worried about gaps, the two of them can look at what those gaps are and whether something alongside the policy makes sense. Siew Lan keeps her policy, and a year later she refers her sister to Wei Ling.
Compare the old and new policies on these four points:
Cover: what each policy pays, for which events, and under what definitions. A longer list of illnesses means little if the definitions for the common conditions are narrower or the extra conditions are rare, so compare the conditions that matter for this particular client. Cost: the premium on each policy, whether it is fixed or can be revised, and how long it is payable, plus any surrender loss from giving up the old policy. Exclusions: what each policy excludes, including any new exclusion that would apply because of the client's current health. Health underwriting: what the client's current health means for the new application.
You often won't know how the underwriting turns out until the insurer has assessed the application. Never cancel the old policy before the new one is in force and you know its terms.
A switch can be justified when the old policy is genuinely poor value, when the client's needs have changed and the old policy no longer fits, or when the new policy fills a real gap without giving up anything that matters. In each of these cases the comparison will show the benefit clearly. If it does not, recommend keeping the existing policy. If you can't point to a clear benefit to the client that outweighs the costs, there is no case for switching.
You can still recommend adding cover alongside the old policy. That raises its own questions about need and affordability, and you treat it as a separate recommendation from replacement.
Each firm has its own replacement process. It may include specific forms, a comparison the client signs, and in some cases a review by your supervisor. Follow it every time, including when the client asked for the switch. File reviews look closely at replacement cases, and a replacement done without the right forms is very hard to defend even when the switch was in the client's interest.
Record the comparison, your conclusion, and the client's decision in the client's own words. Write the conclusion so that someone reading the file can follow it without having been in the meeting. When a client switches against your advice, Lesson 4.4, "When the client wants something you did not recommend", shows how to record it.
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.
For a practice replacement case, put the old and new policies side by side, then write one paragraph saying whether the client should switch and why.
Junxiong-WFG Organisation is an authorised representative of AIA Financial Advisers Private Limited (Reg. No. 201715016G).