What to consider before replacing insurance cover

By replacing your cover, you may be paying for additional acquisition costs such as medical examination fees, underwriting and registration costs. FILE 

By Isaiah Opiyo

In Summary

• To stay safe, seek additional opinion from an independent life insurance or financial planning expert.

Following last week’s article on “prioritise your insurance needs before taking up a cover” I received a unique comment from one my reader; Catherine* which I felt I needed to share for the benefits of other readers.

For a period stretching over a decade since she signed up for her first insurance cover, Catherine has never held any cover longer than two years. This is not because she can hardly afford to consistently pay for her premiums to sustain her insurance cover but it’s the results of the advice she gets from her insurance agents.

Since her first experience with insurance, Catherine has maintained close ties with a number of agents from different local insurance companies from whom she gets free advisory on any new product rolled in the market before she could consider purchasing any.

Initially she could get sincere advice from them but later on, some of these advisors who had managed to change employers to other insurance firms begun to call on her urging her to terminate or replace her existing insurance cover they had previously sold to her in order to switch to “better ones” offered by their new insurance companies.

She now finds herself in a financially worse off situation where she needs some fees for her daughter’s education but with only a cover that is hardly two years old.

Had she stood by her first education cover without any replacement, Catherine would have accumulated some significant cash value or she could now be entitled to annual bonuses from her policy which would go towards payment of her daughter’s school fees.

It was until then that Catherine learnt that she had indeed reduced herself to an object of manipulation by the agents who recommended replacement or termination of past insurance covers to create an opportunity for sale.

Catherine ordeal is analogous to what happens to many policyholders who have put their trust at the behest of their insurance agents. As a result of this, most of them have become a prey for some fraudulent agents who would only recommend a product, termination or replacement of a policy to create new opportunities for additional sale.

Consequently, the statistics from most insurance companies would reveal low insurance cover retention while most policyholders would confirm that at one time in their lives, they have terminated or replaced their past policies at the discretion of their agents.

As a policyholder, replacing your existing life insurance contract at the discretion of your insurance agent without a careful thought can be something very fatal to your financial wellbeing.

Whether you are just trying to minimise your premium costs, review your coverage in tandem to your financial needs, replacing your insurance contract has both merits and demerits that can impact significantly on your financial health.

Usually replacing an assurance cover involves terminating the existing cover and taking up a new cover in its place. It involves termination of the existing cover and taking up in its place a new or a different cover.

During this time, most policyholders make a fatal mistake of terminating their existing contracts prior before securing a new cover in its place. The disadvantage is that an uncertainty such as death may occur before you secure the new policy but after terminating the existing cover.

Unfortunately in such a scenario, you will not eligible to any compensation or benefits from the insurer.

Because of deterioration of health status some policyholders even get their new applications for new covers rejected on the ground of pre-existing health conditions which makes their lives risky to insure.