What could result from a life insurance replacement transaction?

A life insurance replacement transaction could potentially lead to a surrender charge. This charge typically applies when a policyholder cancels or surrenders their existing life insurance policy, especially if it has accrued a cash value. Surrender charges are designed to recover costs incurred by the insurer during the initial stages of the policy, such as commissions and administrative expenses.

When replacing a policy, the original contract is often canceled before the new one takes effect, triggering this fee. The amount of the surrender charge can vary depending on the insurer’s policy terms and the duration the policyholder has held the insurance, which could potentially affect the overall value the policyholder receives when moving to a new insurance product.

In contrast, other charges mentioned, such as a refund charge or conversion charge, generally do not take place specifically as a result of replacing a policy. While replacement transactions may involve various fees, the surrender charge is the most relevant and directly associated with the action of replacing a life insurance policy.