When an agent recommends replacing an existing life insurance policy, what is a key risk the client faces due to a new policy's structure?

Question: When an agent recommends replacing an existing life insurance policy, what is a key risk the client faces due to a new policy's structure?

Answer options:

• Immediate eligibility for the new policy's full non-forfeiture values. ✅ A new contestability period and potentially higher premiums based on re-underwriting.
• Accelerated growth of cash values compared to the original policy.
• Guaranteed insurability riders becoming immediately effective without charge.

Correct answer: A new contestability period and potentially higher premiums based on re-underwriting.

Explanation: A significant risk with policy replacement is the initiation of a new contestability period, meaning the insurer can deny claims for a set period (typically two years) if there were material misrepresentations. Additionally, the client's age and health at the time of re-underwriting for the new policy may result in higher premiums or even uninsurability.