What happens to an existing policy when a new life insurance policy is purchased to replace it?

When a new life insurance policy is purchased to replace an existing one, the standard practice is that the old policy is terminated. This typically occurs because the new policy is designed to provide similar or improved coverage, but it effectively replaces the former coverage.

The replacement of a policy is significant, as it often involves a careful assessment of the benefits provided by the new policy compared to the old. This termination ensures that policyholders do not unintentionally maintain overlapping coverage, which could lead to confusion or additional costs.

Additionally, when a policy is replaced, the underwriting process may also take into account whether the replacement action is in the best interest of the insured, further reinforcing the need for a clear understanding of the implications of discontinuing the old policy. It is important for policyholders to be aware of this process to avoid losing benefits that might be present in the old policy.