Every term life insurance policy has a prescribed number of years in which the policy is meant to last, known as the term length. This may be 10, 15, 20, 25, 30 years, or most times, till a certain age. The term depends on what you select when you buy the policy.
However, what happens when the policy term reaches its end? Should you renew your life insurance policy? Should you buy a new insurance policy? Or should your convert your term coverage to coverage for life?
In this blog post, I will walk you through your options when your term life insurance expires and you need to renew it.
Continue reading to find out more.
What is Term Life Insurance Renewal?
Term life insurance is the simplest and most affordable way to financially secure your loved ones in Canada. It offers coverage for your loved ones for as long as needed. You don’t have to pay for extra cash value components that increase your insurance cost.
Most term life insurance policies come with a new “guaranteed renewable” feature. This feature allows you to renew your life insurance policy at a pre-specified price before it expires.
You don’t need to submit proof of insurability when you renew your term life insurance policy. You qualify automatically. So, if you have developed a health condition that will make you uninsurable, the insurance company cannot turn down your request for insurance renewal.
Suppose you buy a 10-year term insurance policy. The policy will specify the monthly or annual premiums you will pay over the next ten years. It will also specify the monthly or annual premiums you will pay if you choose to renew the policy every ten years. You get the chance to renew your life insurance policy at guaranteed rates without any blood or urine test before the policy term ends.
However, the convenience of renewing your term life insurance policy comes with a higher insurance premium. Insurance companies in Canada set their renewal rates at extremely high prices. They assume that your health has deteriorated during your previous policy and set your renewal rate as though you were a high-risk new applicant in poor health.
If you renew your term life insurance policy, you might end up paying premiums that are five to twenty times higher than your initial premiums.
Should You Renew Your Life Insurance Policy
Seeing the difference between your initial premium and the premium you have to pay if you renew your life insurance policy, you might ask, should you renew your life insurance policy?
Renewing your term life insurance policy might not be the best option. You can choose other options and get lower rates, like converting to permanent life insurance or buying a new insurance policy.
Here are four simple steps to smartly assess whether you need to renew your life insurance policy or not.
Step 1: Know Your Policy’s Expiry Date
You can not renew your policy after it expires. You can only renew before the policy’s expiry date. Ensure you know the exact date your policy’s term will end. It is mainly written on the first page of your policy document.
When you discover the term’s expiry date, set a reminder for about four or five months before the date to tackle the next step.
Step 2: Understand Your New Insurance Needs
Suppose you bought a 20-year term life insurance two decades ago; your present insurance needs cannot be the same as when you purchased the policy. There must have been some significant changes in your life, and you may not need as much coverage now, as you did two decades back.
It is essential to reassess your financial and personal goals to understand where you are currently, how much coverage you might need, and how long you will need it.
Chances are slim that you will need the same insurance coverage again. Talk with an insurance expert and discuss your needs to determine how much coverage you might need now and if you need any coverage at all.
Step 3: Get Insurance Quotes From Different Insurers
When you have determined your new insurance needs and how much coverage you will need, you can consult multiple insurers, apply for a new policy and compare their quotes.
Most Canadian insurance now provide online quotes. You can shop around online and compare their quotes.
Step 4: Ensure Your Policy Is Not Automatically Renewed
Most term life insurance policies will automatically renew at the end of their term. When they renew, they come with a far higher premium than the initial premium.
So, ensure your insurance policy does not automatically renew, especially if you discover you might not need it again.
What Are The Types Of Renewable Term Life Insurance Policy?
There are several renewable term life insurance policies. The most common type is the one that renews at the end of the initial term. The initially agreed term could be 10, 15, or 20 years, after which the policy renews for another term.
Another common type of renewable term life insurance policy is the one that has a yearly renewable term. This policy is renewed yearly, and the premium gets more expensive with each passing year.
The initial premiums are low compared to typical term life insurance policies. However, with the yearly premium increase, the premiums become more costly in the long run.
What Happens When Your Life Insurance Policy Expires
Your term life insurance policy expires when it matures and reaches its full term. If your term life policy is approaching its end, you have three options.
You can renew your life insurance policy, get a brand new one, or convert your term life insurance policy to a permanent one.
Also, if you no longer need coverage, you can cancel your term life insurance policy.
- Renew: If you don’t take any action when your term life insurance policy expires, it automatically renews yearly until it ultimately expires. With each passing year, your premiums will gradually increase. However, by applying with your insurance company, you can renew your life insurance policy for the original term, e.g., 10, 15, or 20 years.
- Buy a new insurance policy: Suppose your initial term life insurance policy is approaching its end, and you are still young and in perfect health. In that case, it is better to buy a new policy. Renewing your policy will make the insurance company assume you are in poor health and increase your premiums. But applying for a new policy means you will undergo a medical exam to prove your insurability and get lower premiums.
- Convert to a permanent life insurance policy: You can convert your term life insurance policy to a permanent one. A permanent life insurance policy insures you for life and offers investment opportunities. You will get premiums based on the amount of coverage you choose, and you don’t have to requalify or answer any health-related questions.
Final Thoughts on Should You Renew Your Life Insurance Policy
For most Canadians, it would be better to buy a new policy than renew your life insurance policy. This is because of the high renewal rates.
So, unless your health has deteriorated significantly over the years of your initial policy, you should not consider renewing your term life insurance policy.
Renewal rates are generally expensive, and your insurance needs may have changed over time. So, reassess your current insurance needs and speak to an insurance advisor to see which option is best for you before your policy’s term expires.
Hi, I'm Adeola Adegoke. I am a licensed Insurance Broker in Manitoba, and I hold a master’s degree in Mathematical Sciences (with a major in Financial Modeling) from the African Institute for Mathematical Sciences (AIMS), Tanzania.
Also, I have a second master's degree in Statistics from the University of Regina, and I am currently pursuing my Ph.D. in Statistics at the University of Manitoba.
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