What typically happens to an old insurance policy in a replacement situation?

In a replacement situation, the old insurance policy is typically lapsed or surrendered as the policyholder transitions to a new insurance policy. This process occurs when a new insurance plan replaces an existing one, which can happen for various reasons, such as better coverage options or lower premiums with the new policy.

When an insurance policy is replaced, the policyholder generally does not keep the old policy active because it involves a new contract with different terms and conditions. The act of replacing often requires that the old policy be formally terminated, which is why it is lapsed or surrendered.

This ensures that there is no overlap of coverage and possible complications from maintaining two active policies for the same type of insurance. In certain situations, the insurer might also provide a notice that the old policy is canceled in favor of the new one, thereby solidifying the transition and avoiding confusion regarding coverage.