Replacing an existing life insurance policy with a new one may result in?

Replacing an existing life insurance policy with a new one often triggers a surrender charge on the original policy. This scenario occurs because many life insurance policies, particularly whole life or universal life, include a surrender period during which the insurer assesses a fee if the policy is cashed in or cancelled early. The surrender charge is designed to recover some of the costs incurred by the insurer in issuing the policy.

In this context, when an existing policy is replaced, it typically indicates that the policyholder is terminating the first policy to acquire the new one. As a result, the policyholder may lose some of their investment from the original policy due to the surrender charge, which can be a significant amount, especially if the policy is still within the surrender charge period.

The other options presented concern different financial implications or regulatory aspects that do not typically arise directly from the act of replacing an insurance policy. For instance, fine, penalty tax, and capital gains tax do not generally apply in the context of replacing life insurance policies. Therefore, the correct implication of policy replacement is most accurately represented by the possibility of incurring a surrender charge.