For the longest time I had no idea that "New Login" is what I needed to use when I didn't want a new login but instead wanted to update an existing login. It was by far my biggest pain point with using the app for quite a while. And now that I've moved my family on to the 1Passsword.com Family Plan (awesome value, btw!), it is a very confusing workflow to explain and most of them still don't remember it. No doubt this has been reported before, but I didn't see it in the first couple pages of search results and I wanted to add my voice to the chorus.
I'm sure you've already thought of this, but here's my suggestion for an implementation: add a new "Update Existing Login ⌘U" menu item right below the "New Login ⌘S" item in the extension's gear menu and have that go to the exact same "Save Login" window but with the "Update Existing" tab selected instead of "Create New". No new UI needed.
1Password Version: 70600005
Extension Version: 7.6
OS Version: 10.14.6
Sync Type: Not Provided