What you need is a major upgrade. This is essentially an automatic uninstall of the existing version and reinstall of a new version done as one operation by the Windows Installer Engine itself after you author the Upgrade table of the MSI, set a new ProductVersion and change the package and product code. This is the least error prone update mechanism in Windows Installer. To implement a major upgrade in Installshield go to the Upgrades view and add an upgrade item. Then you follow the GUI wizard or pages and set upgrade options. I will see if I can find a better link for you now, but this should get you going.
To really understand Windows Installer Upgrades you should read this book chapter. Or this Microsoft MSDN page.
Just for completeness: a minor upgrade - which is upgrading the existing install without uninstalling it, is generally more difficult to get right in the beginning. A number of technical restrictions apply. Here is a very good summary of what is required for a minor upgrade to work (as well as other details): http://www.installsite.org/pages/en/msi/updates.htm