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The recent report by the Consumer Council on the increasing complaints and concerns has brought to light the importance of due consideration when replacing life insurance policy.

Life insurance, unlike general insurance, involves a longer policy period. In general, you will suffer losses if you surrender an existing life insurance policy, particularly during the early years of the policy period.

Before making a decision to change your existing life insurance policy, you should ask yourself the following questions:

  • Why do I replace my existing policy? If your intention is merely to increase the sum insured or extend the scope of your insurance coverage, you should consider adding a rider or taking out a new policy instead of replacing an existing policy.
  • Is the new policy identical to the existing one? If you intend to replace a traditional life insurance with an investment-linked life insurance (ILAS), you should clearly understand that it is a long-term investment-cum-life insurance product, and be aware of its long-term features, such as upfront charges. You should also ensure that you accept their death benefits are subject to investment risks.
  • Will I be subject to a higher premium rate or a longer premium payment period? Replacing policy involves application for a new policy, which will need to go through a new underwriting process to assess your age and changes in health condition, and hence additional cost.
  • If the existing life insurance includes a rider, is a similar rider also provided in the new policy? If yes, the policyholder needs not apply for the same rider protection as undergoing the underwriting process again may increase the premium.
  • Has my insurance intermediary fully explained the actual and potential losses to me? Remember, signing means responsibility. You should carefully examine the Customer Protection Declaration before signing.
  • Do I have genuine need to replace my policy? Make sure you act for your own interests and benefits instead of being pushed or persuaded by your insurance intermediary. If needed, you should also approach the existing insurer or your financial adviser for a balanced view.
  • Have I thoroughly examined the new policy after receiving it? If you eventually consider the new policy not suitable, you have the right to cancel it within the cooling-off period (21 days after the delivery of the policy or issue of a notice to the policyholder or the policyholder's representative whichever is the earlier) and obtain a full refund of the insurance premium (less a market value adjustment where applicable).
  • Should I terminate the existing policy? Not until the new policy has taken effect, you should not terminate the original one; otherwise you may suffer from a gap period without any insurance protection.

All in all, you should conduct due diligence and think twice before changing your existing life insurance policy. To protect your interests, you should carefully compare your existing and the new insurance policies and assess whether the replacement of policy is in your best interests before making a decision.