Renewable Term Life Insurance - Part II

In my previous post I discussed how term policies in Canada are technically renewable but the higher renewal premiums mean that for most of us the policy won’t be renewed. Let’s look at what our options actually are upon hitting the first renewal period for your term life insurance policy.

1. You’re healthy and still need the insurance. Well, that’s simple enough - shop out the life insurance (you can use the quoting system on the right side of this page), take a new medical exam and buy a new policy from whatever company is currently offering inexpensive prices.
2. You’re healthy and don’t need the insurance. Well, I guess you might want to drop the insurance. If there’s no current or future need for insurance, no need to pay for it. In my experience though, this is rarely if ever the case.
3. You’re unhealthy. If that’s the case, even if you don’t immediately need the insurance you probably still want to keep it. If you know you’ll either never get life insurance again or only at greatly increased premiums, then hanging on to your existing policy is probably a good idea. But that leaves you with the prospect of those horribly high renewal premiums - the ‘ultimate’ rate tables. Yikes! But there’s a solution that will allow you to go back to the ’select’ rate table without taking a medical exam. This is called the conversion priviledge and I’ll discuss it in detail in a future post. Most but not all companies in Canada offer this conversion priviledge at no cost. I recommend you only ever purchase a term policy that has this conversion priviledge.

Now this might seem that the thing to do is to buy a term policy then take a new medical every few years. In fact, that’s not the proper approach. The problem with this approach is that you are assuming the risk of being able to take a new medical exam in the future. Instead, make sure you buy the proper length of term insurance. If you need insurance for 20 years, buy 20 year term instead of 10 year term twice, with a medical exam in year 11.