Can You Renew a Term Life Insurance Policy? Yep! But SHOULD You?

Can you renew a term life insurance policy? This is a question that you may be researching if you’re nearing the end of your term.

The vast majority of people do indeed live past the end of their coverage so it’s important to think about what you are going to do when that time comes. 

If this is you, I can answer this question with a simple YES (most policies allow this). 

BUT there is an even bigger question – SHOULD you renew? 

Why the heck should you listen to me anyway? I would ask this question myself if I ran into this blog. My name is James Heidebrecht and I am the founder of Policy Architects, a boutique life insurance agency in Canada. 

As an independent agent, I work with the best life insurance companies in Canada to find you the most affordable rates for a policy that meets YOUR needs. 

Each and every person has different circumstance and all companies have different ways of approaching medical issues  – so this is no easy feat. 

I can honestly say I love my job and if you are looking to work with a company that gives you the same advice they give family members – then call us today! 

Now before discuss whether you can renew a term life insurance policy or not, let’s quickly review term insurance and it’s features. 

Term life insurance is the best insurance solution 95% of the time. It’s temporary and designed to provide protection for a fixed period. The most common term lengths are 10 year, 20 year and 30 year.

Almost all term coverage, regardless of the carrier, has three main features or guarantees:

1. Monthly cost is guaranteed to never increase over the length of the term. 
2. Guaranteed renewable up to the age of 80 or 85, depending on the product and company
3. Guaranteed Convertible to permanent insurance by age 65, 70 or 75 depending on the plan and carrier

So, for example, if you’re a 40-year-old male, paying $48.15 per month for $500,000 of Term 20 with Empire Life, that rate is locked in for 20 years.

After 20 years, you have the option to renew your term insurance without providing any medical evidence or underwriting. Sounds like a good plan and it will definitely save you time and hassle. But not so fast. 

Who is it good for: Term life insurance is ideal for people who want life insurance coverage for a specific debt or situation. For example, some people buy it to cover their working years as income replacement for their family. Some people buy term life to cover the years of a mortgage or other large debt.

Types Of Life Insurance Policies, Forbes.com 

To better understand the term renewal option, it might help to think of it “as a get out of jail free” card for the policyholder. It’s there for a worst-case scenario. 

Let’s say you purchase a term life insurance policy and just when it’s about to expire, you have a heart attack. Regardless of your age or health, getting a new insurance policy to replace it will be impossible. In the insurance company’s eyes, you’re uninsurable. 

You still need life insurance moving forward but what can you do?

Fortunately, you still have your “get out of jail free card”! You can exercise your renewal option and the insurance company can’t do anything about it.

The best part? You do not need to provide any evidence of insurability: No needles, no questions and no underwriting. All you need to do is sign and complete a renewal form and submit to the insurance company. 

If you’re still relatively healthy, you should always replace term insurance instead of renewing. It’s your most affordable option hands down.

OK so let’s say you bought a 30 year term when you started your family at age 30.

You’re now 59 years old and your policy has served you well. If you die for any reason during that 29 year period your life insurance company cuts your family a tax-free cheque for $500,000. This compensates them for loss of your income. 

Fortunately, you didn’t die and the end of your term is only one year away. You’re healthy, happy and fit. 

So now what? You started your family young – but had a surprise pregnancy at age 45! This means all of your plans are knocked out of whack. Your two oldest children are out of the house but your youngest, Devon, is now 14 and will be 15 years old when the term ends. He still has a few years left at home before he thinks about heading off to college. 

Another issue….you still have a decent chunk of your mortgage to pay down as you refinanced your home in order to do some much-needed renovations.  

Long story short, you still need life insurance – at least for the next 10 years – to make sure the mortgage is taken care of and there’s a safety net while Devon transitions into early adulthood. 

You have two options.

1) As I mentioned above you absolutely can renew your policy – without a medical exam or any underwriting. It’s one of the perks of holding a term life insurance policy. 

2) You can also replace your expiring coverage with a new term life insurance policy. Let’s take a quick look at the cost of both options using current life insurance rates.

Option A:

A 30-year-old, female, non-smoker pays $34.65 per month for $500,000 of 30-year term with Wawanesa Life. If she decides to renew her coverage when the term expires at age 60, her renewal rate is $392 per month for the next 10 years. That’s approximately 10 times what she’s been paying for the past 30 years.

Option B:

Our 30-year-old is now 59 and in good health. She decides to purchase a brand new 10-year term policy. Because she’s healthy, she receives a standard rate and pays $126 per month for $500,000 10-year term with Wawanesa. 

So replacing her term insurance instead of renewing saves her $266 per month!

So does it make sense to renew your term coverage when you can replace it at 30% of the cost? No, I don’t think so.

1. You can’t keep your term coverage indefinitely. There is a maximum age. Typically policies are not renewable past 80 years of age (this is not set in stone so please be sure to review this information with your independent agent). Also please know even if your term extends past this maximum birthday – the policy expires on the policy anniversary following your 80th birthday. This is a big issue – there is no guarantee that your beneficiary inherits anything. 
2. The Face Value Cannot Be Increased: The coverage you selected will be the coverage that continues after the renewal OR you can lower the coverage amount. 
3. There’s a Deadline: If you know you want to renew your coverage because you’re unwell and are unlikely to qualify for new insurance, find out what the deadline is. Typically you need to contact the insurer 30 days before your coverage expires. 

Most term life insurance policies renew automatically. What does that mean?

It means that if you’re not on top of it, you may already be paying higher renewal rates for the 10-year term policy you purchased 12 years ago. You should check your bank account right now to make sure you haven’t been paying increased premiums for the past 2 years!

How can that happen? When your term policy is coming up for renewal, your life insurance company sends you a notification in the mail.

Unfortunately, some policyholders don’t understand because it may be confusing. Long story short, the onus is on you. If you don’t contact your insurance carrier or take some sort of action, the policy automatically renews and the insurance company debits your account for the increased renewal premium. 

I can’t tell you how many clients I’ve spoken with who’ve had this happen. They either didn’t understand that they had the option to replace their coverage with something cheaper…

…or they didn’t notice higher premiums being drawn out of their bank account. In some cases, they ended up paying renewal rates for 10 years and had no idea. It’s nothing to be embarrassed about, I’ve seen it happen. 

If you’re reading this and have a term policy that’s been in force for a while, you should go dig it up right now…make sure you know what the renewal date is. If you’re not sure what all the jargon says, reach out to us, we’ll be happy to review your policy with no obligation. 

If you’ve just realized your term policy is about to expire, there is a way to replace your coverage without causing a gap in your insurance. 

Whatever you do, do NOT cancel your current policy until you have replacement coverage in force!

Now first things first, your policy is about to renew which means the insurance company will debit your account for the increased renewal premium. If you want to avoid this payment while still keeping your coverage in force, there is a way to buy yourself some time. 

You can put a stop payment on your life insurance premium through your bank or financial institution. This is not the same as cancelling your insurance.

Sure, you’ll get a letter from your carrier notifying you of the lapsed payment but your life insurance stays in force for 30 days. This is called a grace period.

You may even get a call from the agent who sold you the policy. The same agent who should have been in communication with you and notified you 12 months ago that your policy would be coming up for renewal.

Anyway, now you have 30 days to replace, renew or cancel your policy. It may be a tight timeline if you replace your current policy with full, medically underwritten coverage. Sometimes this can take 4-6 weeks to underwrite.

You can always buy a no medical life insurance policy first and then replace it with traditional coverage when you have more time. Simplified issue life insurance can be purchased and in force through a carrier like Canada Protection Plan within 72 hours. 

Once you’re replacement coverage is in force, cancel your current policy.