The Replacement That Looks Too Good
Aisha is reviewing a proposed replacement. Her client, Tom, 58, holds a universal life policy with a $500,000 death benefit, a cash surrender value of $62,000, and an annual premium of $6,400. He has mild hypertension, controlled. Another agent has proposed surrendering the UL and purchasing a new term-to-100 policy with a $500,000 death benefit at $9,100 per year, plus a new critical illness rider. The illustration shows the new policy "building $180,000 of value by age 85." Tom says: "The other agent says my old policy is a dinosaur and I'm throwing money away. He says he'll handle the paperwork and I don't need to read it all." Aisha notices the illustration assumes a 6.5% return and does not show the surrender charge schedule on the existing policy, which has three years remaining.
1. What must Aisha do before Tom signs anything, and what in the proposal should she challenge?
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Replacement triggers a heightened duty. Aisha must conduct and document a comparison of the existing and proposed contracts - death benefit, premium, guarantees, cash values, surrender charges, riders, and the tax consequences of surrendering the UL - and she must ensure Tom receives the required replacement disclosure and signs the appropriate forms. She should not rely on the other agent's summary.
She should challenge: (1) the 6.5% illustrated return on a policy being sold as a value-builder - illustrated values are not guarantees, and a projection at that rate should be shown alongside the guaranteed columns; (2) the $180,000 "value by age 85" claim, which is a projection, not a promise, and should be stress-tested at a lower rate; (3) the surrender charge on the existing policy - surrendering now forfeits value, and the three remaining years are a real cost the proposal omits; (4) the premium increase of $2,700/year against any added benefit, and whether the CI rider is needed or is being used to make the replacement look richer; (5) the claim that the old policy is a "dinosaur" - a UL with a $500,000 death benefit and $62,000 CSV is not obviously inferior, and the comparison should be on Tom's objectives, not slogans. Her conclusion may legitimately be "do not replace" - and she must be willing to say so.
2. Tom says he doesn't need to read the paperwork and wants Aisha to "just make it happen" because the other agent is a friend. How should she handle consent and the conflict?
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Aisha cannot accept blanket, uninformed consent. She should explain, in plain language, the three or four facts that matter most - the surrender cost, the premium increase, the non-guaranteed nature of the illustrated values, and the loss of the existing contract's guarantees - and confirm he understands. She should document the conversation and give him time to review; a same-day signature on a replacement after a "don't read it" instruction is a red flag she should not facilitate.
On the conflict: if Aisha earns compensation on the replacement (or loses it by advising against), that is a material conflict she must disclose. If she is not the agent on the new policy, she should clarify her role in writing - is she advising, or merely witnessing? She should not sign as if she performed a needs analysis she did not perform. If Tom insists on proceeding without reading, she should record his instruction, confirm she advised against proceeding without review, and decline to attest to anything she did not do. Friendship with the other agent is irrelevant to her duty; if anything, it requires her to be more careful, not less.