Renewable and Convertible Term Life Insurance in Canada

Canadians rely on life insurance to protect what matters most. Term life insurance provides affordable coverage but expires after the set term ends. This leaves a key question—what happens when your term life insurance lapses?

Renewable and convertible term policies offer solutions by providing flexibility to extend or upgrade coverage even after your health declines.

This detailed guide explores the complexities of renewable and convertible term life insurance for Canadians aiming for long-term financial security.

What Does Renewable Term Life Insurance Mean?

Renewable term life insurance allows you to extend your coverage after the initial term expires. This is done by either:

1. Renewing your existing term policy with the same insurer.
2. Purchasing a new term policy from the same insurer.

Essentially, renewable term life allows you to renew your coverage for another term if you still need insurance after the initial policy period.

For example, if you purchased a 10-year policy at age 30, the renewable term means you could renew at age 40 to extend coverage for another 10 years until you reach age 50.

Most renewable term life insurance policies can be renewed up to age 75-80 before coverage ends. The exact details depend on the insurer.

Now, let’s examine the pros and cons and how renewable term life insurance works in more detail.

How does Renewable Term Life Insurance work?

Renewing a term life insurance policy is straightforward:

• Your initial term policy has an expiration date. For a 10-year policy, this is the end of year 10.
• As that date approaches, you can extend your coverage by renewing it for another term.
• Renewal terms are usually available in increments matching your initial term. So, renewing the 10-year term life policy would extend it by another 10 years.
• Renewals continue based on your age until the maximum renewal age, which is typically 75 years old.
• At renewal, you must begin paying higher premiums for your attained age. However, renewal does not require new medical exams or health questionnaires.

By avoiding new underwriting, renewable term provides an affordable way to maintain life insurance as you age.

What Are The Advantages of Renewable Term Life Insurance?

There are four advantages to purchasing a renewable term life insurance policy:

Guaranteed Insurability

Renewing a policy does not require proof of insurability, which guarantees that coverage can be extended regardless of changes to your health.

For example, if you develop a chronic health condition during your initial term, renewing lets you extend protection that may be difficult to qualify for with a new insurer.

Affordable Premiums

While renewal premiums increase, they remain more affordable than purchasing new coverage after aging or developing health issues.

Convenience

Renewing your existing coverage is very convenient. You don’t need to re-qualify or shop around for a new policy.

Coverage Flexibility

You have flexibility over how long to extend coverage. You can renew year-by-year based on need. This accommodates changing life insurance needs.

What Are The Disadvantages of Renewable Term Life Insurance?

There are four drawbacks to note with renewable term life insurance as well:

Expensive Renewal Premiums

You’ll pay significantly higher premiums at renewal, often 2-3x your initial rates. Insurers’ price renewal rates are based on your age at that time.

Reassessment of Needs

You should reassess your life insurance needs before blindly renewing. Consider whether your dependents, income and debts still warrant extended coverage.

Missed Qualification Opportunities

By skipping new underwriting, you lose a chance to potentially qualify for lower premiums by demonstrating good health.

No Permanent Coverage

The renewable term still ends at some point. It does not provide lifelong coverage, like converting to permanent life insurance.

Overall, the flexibility renewable term life insurance offers by guaranteeing extended insurability comes at the cost of higher renewal premiums.

What Does Convertible Term Life Insurance Mean?

Convertible term life insurance allows you to exchange your term policy for a permanent life insurance policy. This conversion option is available either:

• At the end of your policy term
• At certain term anniversary dates (e.g. every 5 years)

Converting term to permanent life insurance offers advantages, including lifelong coverage and cash value growth.

Now, let’s look at how convertible term life insurance policies work.

How Does Convertible Term Life Insurance Work?

Here is an overview of how convertible term life insurance functions:

• Start by purchasing a convertible term life policy from an insurer offering permanent life insurance.
• At the end of your term length, you now have the option to swap your term policy for a permanent policy through the conversion process.
• Whole life insurance and universal life insurance are popular permanent policy types available for conversion. Conversion options vary by insurer.
• Converting to permanent coverage typically does not require new medical underwriting. Your premiums are based on your age at the time of conversion. So, they will be higher than your original term premiums due to age.
• Once issued, the new permanent life insurance policy provides lifelong coverage that does not expire and accumulates cash value that you can borrow against.

The flexibility to convert to permanent coverage provides long-term stability and options in your life insurance portfolio.

What Are The Pros of Convertible Term Life Insurance?

There are five potential benefits to choosing a convertible term life insurance policy:

Lifelong Coverage

Converting to permanent life insurance means coverage never expires, providing lifelong protection.

Guaranteed Insurability

Conversion does not require new medical underwriting. You can convert even if health issues arise that make you uninsurable down the road.

Cash Value Funding

Permanent policies accrue cash value. This can be used as a supplemental retirement fund or to pay policy premiums later in life.

Stable Premiums

Permanent policy premiums remain fixed over your lifetime after conversion. They do not increase annually as renewable term premiums do.

Avoid Insurance Gap

Converting allows seamlessly continuing coverage without gaps in protection around when your term policy expires.

What Are The Cons of Convertible Term Life Insurance?

Three things to keep in mind if considering convertible term:

Higher Cost

Permanent life insurance is more expensive initially than term insurance. Premiums after converting will be higher than your original term policy.

Less Flexibility

With permanent insurance, you commit to lifelong coverage, which offers less flexibility than short-term renewable term policies.

Potential Coverage Gap

If you miss the conversion deadline, a gap in coverage may occur until new insurance is purchased. Conversion deadlines vary by insurer.

Overall, the pros of convertible term life insurance tend to outweigh the cons. The lifelong coverage and guaranteed insurability make convertible terms very appealing.

Key Differences of Renewable vs. Convertible Life Insurance

The main difference between renewable and convertible life insurance is what happens after the initial term expires. With renewable life insurance, you extend your coverage for another term. With convertible life insurance, you switch your term policy to a permanent one.

Here is a summary table of the most significant differences between term and permanent:

Why Consider Renewable and Convertible Term Life Insurance?

We’ve now covered the basics of renewable and convertible term life insurance. Let’s discuss why Canadians may want to choose policies with these flexible options.

The main appeal of renewable and convertible term life is that both options allow you to maintain continuous insurance protection if your needs change.

Certain life events, such as illness, career changes, new family dependents, or early retirement, may alter your insurance needs as you age. The ability to adapt your coverage is extremely valuable.

Here are three common scenarios where renewable or convertible term life insurance can provide critical flexibility:

If Your Health Declines

Alan purchased $750,000 of 20-year term life insurance at age 35 to protect his family. By age 50, he is diagnosed with heart disease, making it impossible to qualify for new coverage.

With a renewable term policy, Alan can simply renew his coverage for another 10-20 years up to the maximum renewal age. This guarantees his family will remain protected despite his health deterioration.

Had Alan purchased regular non-renewable term life insurance, he would have lost his coverage completely after the initial 20-year term and would have been unable to purchase new insurance.

If You Need Permanent Life Insurance

Maria bought $500,000 of 10-year term insurance at age 28 to cover her new mortgage. After 10 years, she realized her children were still dependent, so she now wants lifelong insurance protection.

Because Maria chose a convertible term policy, she can convert her 10-year term into a permanent whole life insurance policy with a similar $500,000 death benefit.

This provides Maria with permanent lifelong insurance that will cover her throughout retirement. Her coverage would have expired with only regular term insurance, and she may be uninsurable for new permanent policies.

If Your Budget Changes

When James bought his term life policy at age 45, he could only afford higher-cost 20-year renewable term insurance. After retiring at 65, James now has more budget flexibility but cannot obtain new coverage due to his age.

With his renewable term policy, James can renew for shorter 1-2 year increments based on what he can afford on his fixed retirement income. This allows James to maintain affordable protection.

Without the renewable option, James would have to overpay to continue 20-year renewals or lose his life insurance entirely once the initial term expires.

Key Takeaways

• The renewable term allows continuing coverage if you need temporary insurance beyond your original term length.
• Convertible term provides the option to upgrade to permanent insurance if you need lifelong protection.
• Choosing renewable and/or convertible term policies provides flexibility later on if life circumstances change.

Ultimately, opting for term life insurance with renewable and/or convertible riders can provide long-term financial security through the flexibility to adjust your coverage.

Now, let’s examine where you can purchase renewable and convertible term life insurance policies in Canada.

Where Can You Buy Renewable and Convertible Term Life Insurance in Canada?

The major life insurance providers in Canada, such as Sun Life, Manulife, Canada Life, and RBC Insurance, all offer renewable term life insurance options.

However, access to convertible term life insurance policies depends on whether the insurer sells both term and permanent life insurance products.

Let’s examine some of the top life insurance companies in Canada and their convertible term and permanent policy offerings.

Sun Life – Best for Universal Life Insurance

Sun Life offers competitive 10, 20 and 30-year renewable term life insurance policies.

For convertible terms, they provide multiple permanent life insurance options, including:

• Whole life insurance
• Universal life insurance – Sun’s “SunUniversalLife” policies offer flexible coverage with transparent pricing and guarantees. This makes their universal policies well-suited for conversion from term life insurance.

Manulife – Well-Rounded Mix of Life Insurance

Manulife sells both renewable term and a wide range of permanent policies:

• Renewable term – Available in 10, 15, 20 and 30-year policy terms.
• Whole life insurance – Manulife’s basic whole life option for conversions.
• Universal life insurance – Manulife’s “Manulife UL” universal policies have competitive premiums and interest rates. Provides a strong convertible universal life insurance choice.

Overall, Manulife insurance offers a well-rounded selection of life insurance options for renewal and conversion needs. You can

Canada Life – Focus on Whole Life Conversion Products

Canada Life provides:

• Renewable term – Offered in 10, 20 and 30-year renewable terms.
• Whole life insurance – Canada Life has put emphasis on simplified whole life conversion products for their term insurance holders. This presents a streamlined way to convert into permanent coverage.
• Universal life – Although not their main focus, Canada Life does offer “Canada Life UL” universal life policies at competitive rates.

Someone looking for a basic whole life conversion option may find Canada Life insurance‘s offerings ideal.

Other Insurers

Most major insurance companies in Canada have their proprietary life insurance products for renewals and conversions:

• RBC Insurance – Insured Retirement Program (IRP) for conversions
• BMO Insurance – Uniflex for conversions
• Empire Life – Term Plus for conversions

Overall, when shopping for renewable and convertible term life insurance, be sure to:

• Review policy terms for both renewable and conversion provisions.
• Compare term and permanent policy options from each insurer.
• Ask your insurance advisor how the renewal and conversion options work with specific policies.

Prioritizing renewable and convertible features will provide maximum flexibility to adapt your life insurance coverage as needed, regardless of what life throws your way.

Key Takeaways on Renewable and Convertible Term Life Insurance

To summarize, here are 6 key takeaways from this guide on renewable and convertible term life insurance for Canadians:

• Renewable term life lets you extend your temporary coverage for additional terms without medical requalification. It is ideal for those wanting continued insurance for a defined period.
• Convertible term life allows an upgrade to permanent insurance with lifelong coverage and cash value benefits. It is best for those wanting lifelong protection.
• Choosing policies with these options empowers you to modify your coverage to reflect changes in health status, age, income needs, or dependent obligations.
• While costlier than basic term, renewable and convertible term life enables flexibility in your insurance portfolio to adapt as your life situation evolves.
• Most major Canadian insurers offer renewable terms. When shopping for a convertible term, check if conversion options to permanent life insurance are available.
• Work with an insurance advisor to select the ideal renewable and/or convertible term life insurance policy tailored to your coverage needs now and in the future.

FAQs

Article Sources:

1. Renewable & Convertible Life Insurance for Canadians – https://www.ratehub.ca/
2. Renewable and Convertible term life insurance – The Term Guy – https://thetermguy.ca/
3. Renewable and Convertible Term Life Insurance – https://lifeinsurancecanada.com/