Arizona Life and Health Practice Exam

If a producer replaces a client's existing life insurance policy with a new one, what is advisable?

1. Surrender the existing policy immediately

2. Wait until the new policy is issued before surrendering the existing policy

3. Notify the client of potential losses before making the change

4. Transfer the benefits to a third-party insurer

The correct answer is: Wait until the new policy is issued before surrendering the existing policy

When a producer is considering replacing a client's existing life insurance policy with a new one, it is advisable to wait until the new policy is issued before surrendering the existing policy. This approach is important for several reasons. First, ensuring that the new policy is in force before terminating the current coverage protects the client from any gaps in coverage. Life insurance is intended to provide financial security, and if the existing policy is surrendered prematurely, the client may find themselves without coverage if there are any delays or issues with the new policy's issuance. Additionally, it is also critical to review the terms of the new policy compared to the existing one. This enables the producer and the client to evaluate the benefits, costs, and terms thoroughly before making any final decisions. By waiting for the new policy to be issued, the client can be sure they are making a well-informed decision that aligns with their financial goals and needs. Other options present risks that could negatively impact the client. For instance, surrendering the existing policy too soon might lead to potential losses or lapses in coverage, while notifying the client of potential losses is important but does not take the critical step of ensuring coverage continuity. Transferring benefits to a third party does not directly address the client's need for