In a replacement transaction, why should an existing policy not be terminated until the new policy is issued?

In a replacement transaction, it is crucial to ensure that an existing policy remains active until the new policy is issued to avoid the risk of losing coverage altogether. If the existing policy is terminated before the new one is in effect, there could be a gap in coverage, leaving the insured vulnerable to potential risks and claims during that time. Maintaining the existing policy ensures continuous coverage, which protects the insured from any unforeseen events that may occur before the new policy takes effect.

This approach is especially important in situations where there could be underwriting requirements or medical evaluations involved in obtaining the new policy; if the existing coverage lapses, the individual may not qualify for the new policy, leaving them without any insurance at all. Therefore, waiting for the new policy to be issued before terminating the old one protects the insured's interests and ensures that they have continuous protection during the transition.