Fact CheckedCan you renew a term life insurance policy? If you’re nearing the end of your term coverage, you may be researching this question.
The vast majority of people live past the end of their term, so it’s important to think about what you will 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?
My Name Is James Heidebrecht & I Am An Independent Agent
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 founded Policy Architects, a boutique life insurance agency.
As an independent agent, I work with the best life insurance companies in Canada to find the most affordable rates and help you get a policy that meets your needs.
Every person has different circumstances, and all companies have different ways of approaching medical issues, so this is no easy feat.
I can honestly say I love my job. If you want to work with a company that gives you the same advice they give family members, call us today!
Before discussing whether you can renew a term life insurance policy, let’s quickly review term insurance and its features.
Term Life Insurance Basics
Term life insurance is the best insurance solution 95% of the time. It’s temporary and designed to protect for a fixed period. The most common term lengths are 10, 20, and 30 years.
Almost all term coverage, regardless of the carrier, has three main features or guarantees:
- The monthly cost is guaranteed to never increase over the term.
- Guaranteed renewable up to the age of 80 or 85, depending on the product and company
- 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 can renew your term insurance without providing medical evidence or underwriting. This sounds like a good plan to 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.”
Can You Renew a Term Life Insurance Policy? YES, But It’s Very Expensive!
Term insurance is temporary by nature. Even though there’s a guaranteed option to renew, it’s not designed for that purpose. That’s why renewal rates are so astronomically high compared to the low initial rates you receive when you start your policy. How high are these rates?
Remember that 40-year-old paying $48.15 per month for a 20-year term? Guess how much he pays to renew coverage to age 60. I hope you’re sitting down because he pays $970.20 per month! That’s not a typo. With Empire Life, his premiums are now 20 times the original cost of the term when he renews.
This is standard for all carriers.
“Bottom line: renewing your term life insurance policy is so cost-prohibitive, that 99% of policyholders never do it.”
Renewal of Your Term Life Insurance Policy Should Be Done Only Under Certain Circumstances
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 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, but 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.
Remember, If You’re Healthy, Replacing Your Policy is Always Cheaper
If you’re still relatively healthy, you should always replace term insurance instead of renewing. It’s the 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 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 will cut your family a tax-free cheque for $500,000, compensating them for the 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 when the term ends. He still has a few years left at home before considering college.
Another issue is that you still have a decent chunk of your mortgage to pay down, as you refinanced your home to make some much-needed renovations.
It would be best if you still had life insurance—at least for the next 10 years—to ensure the mortgage is paid and there’s a safety net while Devon transitions into early adulthood.
Good News: You Have Two Options
1) As mentioned above, you can renew your policy without a medical exam or 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. Using current life insurance rates, let’s quickly compare the cost of both options.
Option A:
A 30-year-old female non-smoker pays $34.65 per month for $500,000 of a 30-year term with Wawanesa Life. If she renews her coverage when the term expires at age 60, her renewal rate is $392 per month for the next 10 years. That’s approximately ten 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 with Wawanesa. Because she’s healthy, she receives a standard rate and pays $126 monthly for a $500,000 10-year term.
So, replacing her term insurance instead of renewing it saves her $266 monthly!
Does renewing your term coverage make sense when you can replace it at 30% of the cost? No, I don’t think so.
There Are Some Caveats
- 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 review this information with your independent agent). Also, please know that 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 will inherit anything.
- The Face Value Cannot Be Increased: The coverage you selected will continue after the renewal, OR you can lower the coverage amount.
- There’s a Deadline: If you want to renew your coverage because you’re unwell and unlikely to qualify for new insurance, know your deadlines. Typically, you must contact the insurer 30 days before your coverage expires.
Can You Renew a Term Life Insurance Policy?
Yes, BUT Your Insurance Company May Have Already Done it For You!
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 to ensure you haven’t been paying increased premiums for the past two 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 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 could replace their coverage with something cheaper or were unaware they had the choice.
…or they didn’t notice higher premiums being drawn out of their bank account. Sometimes, 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.”
I Just Found Out My Term Policy Expires in 5 Days. What Do I Do ?!
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!
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 canceling your insurance.
You’ll get a letter from your carrier notifying you of the lapsed payment, but your life insurance will stay 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—that same agent who should have communicated with you and notified you 12 months ago that your policy is coming up for renewal.
You have 30 days to replace, renew, or cancel your policy. The timeline may be tight if you replace your current policy with full, medically underwritten coverage, which can sometimes take 4-6 weeks.
You can 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 your replacement coverage is in force, cancel your current policy.
Make Sure You Know All Your Options: Call Policy Architects Today
Remember, renewing a term life insurance policy guarantees your future insurability. However, it’s not something the vast majority of policyholders will ever need or use, but it’s good to know it’s there.
Unfortunately, term insurance automatically renews without some policyholders’ knowledge. That’s why it’s very important to review your life insurance regularly.
Generally, it’s more cost-effective to replace a term policy than renew it. At Policy Architects, we work with the best life insurance companies in Canada. If you’re thinking about renewing or replacing your term life insurance policy, we can help.
