If your review of your insurance program identifies a problem, what should you do? It depends to a large extent on what kind of problem it is. Some problems are relatively easy to rectify, while others are much more difficult.
Some easily solvable problems that a review could turn up are outdated, inappropriate, or inefficient beneficiaries, dividend options, or payment mode. Any and all of those can be fixed by the owner of the policy by simply submitting the proper form to the company authorizing them to make the change.
A more serious problem is when your insurance company has been downgraded. A slight (one or two levels) downgrade by just one of the rating agencies is not necessarily a problem (most companies suffered downgrades as a result of the 2008 financial crisis), but it usually indicates that more research is required before making a decision.
That could entail a phone call to your broker or agent and/or investigating the cause for the downgrade online. In my opinion, if the downgrade is a result of a significant deterioration of the company’s investment portfolio or a total shake up of top management, policy replacement should be considered.
Another serious problem is when your policy is not performing well relative to the market. That is not the same as saying it is not performing as well as originally projected, because the low interest rate environment the economy has been in for the past several years has decreased policy performance across the board.
Lastly, a change in your objectives may justify replacing your policy. Cheap term insurance may have solved your problem initially, but if your situation now calls for a permanent policy, replacement could be in order if conversion is not possible or appropriate.
Before replacing a policy, several things should be considered. First and foremost is your insurability. If your health has deteriorated even moderately since you procured the policy, a replacement may not be practical, even if it is otherwise warranted.
The type of policy you own should also be considered. A term policy in its later stages is not nearly as much of an issue as is an underfunded variable life policy.
Lastly, even if a replacement is in your best interests, never surrender the current policy before the new one is in force. Additionally, it should be understood that the two year suicide and contestability provisions re-start on the new policy.
To summarize, the three main reasons why replacing a policy should be considered are 1) a problem with the company, 2) policy underperformance, or 3) a change in your personal objectives. And even when replacement should be considered, it is not always practical to do so.