Every term life insurance policy in Canada comes with a specified duration, known as the term length. This period can range from 10 to 30 years or extend until a certain age, depending on your initial choice when purchasing the policy.
But what happens when your term insurance nears its end? Should you renew your life insurance policy, consider getting a new policy, or convert it into permanent coverage?
In this blog post, we’ll guide you through your options when your term life insurance expires and the steps you can take to secure your financial future. Continue reading to learn more.
What is Life Insurance Renewal?
Life insurance renewal is an option for those with a term life insurance policy. It allows you (the policyholder) to renew your policy when it’s about to expire so that you’re not left without coverage at the end of the term.
Most term life insurance policies include a “guaranteed renewable” feature, which permits you to renew your policy at a predetermined price before it expires. Notably, this renewal process does not require you to prove your insurability; you automatically qualify.
So, even if you’ve developed a health condition that might otherwise make you uninsurable, the insurance company cannot reject your request for policy renewal.
Here’s how it works: If you initially purchase a 10-year term insurance policy, it will outline your monthly or annual premiums for the next decade. It will also specify the premiums for renewing the policy every ten years. This allows you to renew your life insurance without undergoing a blood or urine test before your current policy expires.
However, the convenience of renewing your life insurance policy comes with a price – higher insurance premiums. In Canada, insurance companies set renewal rates at significantly higher prices, assuming your health may have deteriorated over the previous policy term.
As a result, your new renewal rate may be similar to that of a high-risk, new applicant in poor health. If you opt to renew your term life insurance policy, be prepared for premiums that could be five to twenty times higher than your initial rates.
How To Decide If You Should Renew Your Life Insurance Policy
When you see the difference between your initial premium and the renewal premium for your life insurance policy, the question naturally arises: should you renew your life insurance policy?
Renewing might not always be the most suitable choice. There are alternatives to explore, such as converting to permanent life insurance or acquiring a new insurance policy. To assist you in making an informed decision, follow these five straightforward steps:
Step 1: Know Your Policy’s Expiry Date
You cannot renew your policy after it has expired; renewal is only feasible before its expiration. Ensure you know the precise date when your policy term concludes – typically, this information is readily found on the first page of your policy document.
Upon discovering the expiry date, set a reminder for about four to five months before this date to proceed to the next step.
Step 2: Assess Your Evolving Insurance Needs
If, for instance, you purchased a 20-year term life insurance policy two decades ago from an insurance provider like Policyme, your current insurance needs will likely differ from those at the time of purchase. Over the years, life circumstances change, and your coverage requirements can shift accordingly.
It’s crucial to reevaluate your financial and personal goals to gauge your current situation and determine how much coverage you need and the duration you require it. Chances are slim that you will need the same level of coverage as before.
Engaging with an insurance expert can help you assess your needs, determine how much coverage you may need and if you require any coverage.
Step 3: Get Quotes from Various Insurers and Apply for New Coverage
Once you’ve determined your insurance needs and the extent of coverage required, consider contacting multiple insurers, applying for new policies, and comparing the quotes.
Many Canadian insurance companies now offer online quoting tools, simplifying the process of shopping around and comparing rates.
Step 4: Don’t Automatically Renew Your Policy
Remember that most term life insurance policies will automatically renew upon their term’s conclusion. These automatic renewals often come with substantially higher premiums than initial rates.
To avoid this, ensure that your insurance policy is not set to renew automatically, particularly if you’ve determined it might not be necessary anymore.
Step 5: Cancel Policy Renewal If Unnecessary
Lastly, if you no longer require the protection offered by your policy, be sure to cancel the renewal before it takes effect. This step is crucial to avoid unexpected charges, like missing the cancellation date for a one-month “free” trial that automatically transitions into a paid subscription.
Failing to cancel may lead to unexpected expenses when your renewed policy’s rates appear on your next bank statement. However, if you require coverage and have decided that renewing is the right choice, you can relax and let the renewal process unfold without needing to take any action.
Types of Renewable Term Life Insurance Policy
Renewable term life insurance policies come in various forms. The most prevalent type is the one that automatically renews at the conclusion of the initial term. This initial term can span 10, 15, or 20 years, after which the policy undergoes renewal for another term.
Another commonly found variant is the yearly renewable term life insurance policy. This type necessitates yearly renewal, with premiums increasing progressively each year. Initially, these policies offer lower premiums in comparison to typical term life insurance. However, as the years pass and the premiums rise annually, they become more costly in the long run.
What Happens When Your Life Insurance Policy Expires?
When your term life insurance policy matures and reaches its full term, it expires. If your policy is nearing its end, you have three main options to consider: renew, purchase a new policy, or convert it to a permanent one. Alternatively, if you no longer require coverage, you can choose to cancel your term life insurance policy.
- Renew: If you take no action when your term life insurance policy nears expiration, it will automatically renew annually, leading to gradually increasing premiums yearly. However, you can avoid this by proactively applying with your insurance company to renew your life insurance for the original term, such as 10, 15, or 20 years.
- Buy a New Insurance Policy: If your initial term life insurance policy is reaching its end, and you are still young and in excellent health, it is often more cost-effective to purchase a new policy. Renewing your existing policy may make the insurance company assume you’re in poor health, resulting in higher premiums. In contrast, applying for a new policy typically requires a medical examination to determine your insurability, potentially leading to lower premiums.
- Convert to a Permanent Life Insurance Policy: Converting your term life insurance policy into a permanent one is another option. A permanent life insurance policy covers you for your entire life and may offer investment opportunities. The premiums for this type of policy are determined based on your chosen coverage amount, and the conversion process typically doesn’t involve requalification or answering health-related questions.
Final Thoughts on Renewing Your Life Insurance Policy
The decision to renew your life insurance is critical, impacting your financial security and that of your loved ones. It’s essential to evaluate your options carefully, considering factors like your current health, financial situation, and long-term goals.
Don’t leave your life insurance to chance. Take proactive steps to secure your future. If you’re still uncertain whether to renew your life insurance, contact us for a personalized consultation, and let’s ensure that you make the best choice for your unique circumstances.
