Contemplating about switching your existing life insurance policy to a new insurance company?
A life insurance policy as the name implies is a long-term commitment. Replacing it with a new policy therefore warrants the utmost of care and caution to ensure that it serves your best interest.
This advice from the Consumer Council followed a rash of complaints recently from dissatisfied policyholders concerned about the after-sales service of their life insurance after a major insurer decided to terminate their insurance agents' service.
But should you decide to change to a new insurer, think twice. Complaints related to life insurance are on an upward trend. Last year the Council received 55 complaints (not including those levelled against the insurer aforementioned), an increase of 41% over the previous year, concerning mainly sales practices and price disputes.
In a recent case, a couple each had a life insurance policy with a combined premium of nearly $5,000 a month. On the persuasion of an insurance intermediary they switched their policies to a new insurer.
The wife had to pay a total sum of $130,000 which entitled her to life insurance protection up to the age of 84 without further premium payment.
Her husband had first to pay $33,736 and deposit the sum of $250,000 from his surrendered policy into the new policy, and also pay a monthly premium of $5,622 for the next 5 years. The policy will give him protection up to 100 years of age.
The couple were promised that they could have their policies surrendered and all money paid redeemed at any time.
Later when making enquiry with the new insurer about their policies, they discovered that contrary to earlier promise early redemption would not be freely allowed at any time and that the interest income was not guaranteed but subject to market fluctuations.
Before replacing your life insurance policy, consumers are strongly advised to take note of the following:
- Is the type of new policy identical to the existing one? If you intend to replace a traditional life insurance with an investment-linked life insurance, the risk of the latter is much higher. For more details, refer to a report in the September 2013 issue of CHOICE on investment-linked insurance products.
- Consumers are reminded that if the existing life insurance includes a rider, be sure a similar rider is also provided in the new policy, such that the policyholder needs not to apply for the same rider protection and to undergo the underwriting process again, which may increase the premium.
- Ensure the intermediaries have fully explained the actual and potential losses after life insurance replacement. Carefully examine the Customer Protection Declaration before signing.
- If being approached to replace the existing life insurance policy, be wary if there is any conflict of interests of the intermediary. For any query on the new life insurance policy, consumers should contact the existing or new insurer for more information before making any decision.
- Should you eventually consider the new policy not suitable, you can 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).
- Not until the new policy has taken effect, consumers should not terminate the original one, otherwise they may suffer from a gap period without any insurance protection.
The Consumer Council reserves all its right (including copyright) in respect of CHOICE Magazine and Online CHOICE ( https://echoice.consumer.org.hk/ ).