Renewable & Convertible Life Insurance for Canadians
Depending on the policy you may have the option to renew or convert your life insurance. This flexibility often found within term life insurance is great for Canadian policyholders. Request a free quote and consultation today.
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What is renewable and convertible life insurance
Matt Hands, VP, Insurance
Renewable and convertible life insurance policies are both types of term life insurance. Renewing a policy increases your coverage for another term while converting it will turn it into new policy type like whole life insurance. A term policy can be either renewable, convertible, or both - it depends on the provider and what you type of policy you select. It is most common for a term life insurance policy to be both renewable and convertible, but you'll want to check with your insurance broker to be certain.
As with all things, you'll get the best value for money on renewable or convertible life coverage if you shop around, and compare life insurance quotes for different providers. Finding affordable and flexible term coverage is only the first step, understanding what decisions to make in the future when it comes to renewing or converting your coverage will be based on your situational needs. You may find it easier to renew than to covert and the cost associated with each decision will be different - let's take a deeper look at the two choices.
How renewable life insurance works
If your term life insurance policy is renewable, it means you have the option of continuing your coverage for another term, once your current term ends. If you were to take out a 10 year policy at age 20, for example, you’d have the option of renewing it when it lapses at age 30. It would then cover you until age 40. Terms are only renewable to a certain age, set by the life insurance company, typically around 75 years.
Pros of renewing a life insurance policy
If you're a believer in term life insurance then there are a lot of positives to like about a renewable policy:
- When you renew a life insurance policy you don’t need to re-qualify. In general, to application process normally requires a medical exam or questionnaire, but with a renewable policy you can bypass this requirement and renew for a new term with ease. This is a big selling point because if you were to get sick during your initial term, you would still be able to renew your policy. Even if your new situation might render you uninsurable (e.g. if you were to be diagnosed with a terminal illness).
- Flexibility and convenience. The renewal process is very straightforward with virtually no barriers for you to overcome. Just notify your broker or provider of your intention to renew and they will take the lead. You even have the option to elect for a re-qualification process, which some people consider as a way to save money at renewal. If you’re still healthy at the time of renewal this could be a great idea, because it will reduce your risk factor, meaning your premiums will be lower than just a straight renewal.
Cons of renewing a life insurance policy
While the pros generally outweigh the cons for this type of policy we do need to acknowledge them:
- Cost is generally the first obstacle, because when you renew your new premiums will be higher based on your age and lack of re-qualification process. The insurance company raises your premium based on the perceived increase in risk. You could opt to re-qualify if you are healthy as it could unlock a better rate and additional coverage options.
- Coverage limitations can often be imposed by insurers upon renewal due to the lack of re-qualification. By limiting the coverage they a limiting their exposure to risks that have may have changed or emerged during the initial term. So by opting for the convenience of a renewal, you may not be able to get as much coverage as you had previously or need going forward. Remember to review your situation before making the final decision.
- No cash value component, which would be available if you chose to convert to whole life insurance instead of renewing your term policy. Now whole life policies typically cost a lot more than a term policy, but they do come with other features like a cash value component that make them enticing. It's best to do your research as part of your decision making process.
How convertible life insurance works
A convertible life insurance policy is one that you can turn into a permanent life insurance policy, either at the end of your term, or at certain anniversaries (eg. every 5 years). Before making the decision to convert you will want to review your current personal situation and coverage needs, including your financials and dependencies. The cost, coverage and underwriting of any permanent insurance will be different than the original term policy you started with, so you want to make you educate yourself before converting.
Pros of converting a life insurance policy
There a number of positives to opting to convert a policy that you need to factor into your decision:
- No need to re-qualify, which is a good choice if your health has deteriorated. This is similar to the renewable process, you won't be required to take any additional medical exams to convert your policy to whole life.
- You also have the flexibility to re-qualify if you choose, which can reduce your premiums - this is often recommended if you're still physically healthy.
- There is also the convenience factor that you don't need to shop around for a new provider or policy. It's a straightforward process to convert and makes it really easy on the policyholder.
- The benefits of a cash value component that come with whole life insurance, which are not available with your term life insurance. The cash value component builds up as you pay your premiums and you can take money out of this cash value for various needs or you can save it up for your eventual retirement income.
- Extending your coverage for the remainder of your life. By converting to a permanent policy you have opted in for lifelong protection. You no longer have any term limits set on whether your death benefit will pay out, assuming your policy remains active.
Cons of converting a life insurance policy
The pros definitely outweigh the cons, but you need to be aware of the perceived negatives as the may sway your decision to convert:
- It's more expensive than term life insurance, at least in the early years of the policy. The cost is largely a result of the extended coverage for life, guaranteed death benefit and the cash value component. It's more risk for the insurance company and premiums don't change with age after you purchase the policy.
- There could be a conversion deadline to convert, which means you may not have as many opportunities or as much time to consider this decision compared to renewing. This just means if you believe converting could be something you would be interested in down the line, you need to do you research early and stay on top of it, so you are prepared to make a decision before any deadlines.
- Potential limited selection in policy options, which will be dependent on the insurance company you chose to purchase the initial term policy with. You will be restricted to their whole life policy options and while they could be a strong term life insurance provider, their whole life options may not be best for you. If you think converting to whole life could be in the cards, you likely need to consider this during your initial purchase when shopping and comparing life insurance companies.
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The downsides of renewable and convertible insurance
Renewable and convertible life insurance policies both offer more flexibility than a normal term life insurance policy. They get you covered today for a reasonable cost, but give you the option to change your coverage if your circumstances change, for better or worse. Because life insurance is cheaper when you’re young, this can be very important.
The downside of renewable and convertible policies is that they're more expensive than term policies that don't offer renewals or conversions. Extra flexibility for you means higher risk for your life insurance company, so they charge a higher premium to make up for it.
That said, there aren't many non-renewable term life insurance policies left in the Canadian market, and while convertible policies are growing in popularity they aren't as common as renewable policies. As with all things concerning life insurance, you need to compare your alternatives and decide what's right for you.
Where to buy convertible and renewable life insurance
All life insurance companies that offer term life insurance will offer a renewable life insurance option. During the application process you can request that the policy be renewable. Your insurance broker will then be able to advise you on your options and pricing, and of course how the policy works. If you're happy with the terms and conditions, as well as the coverage limits its pretty easy to purchase assuming you pass the initial qualification process as part of the application.
Convertible life insurance is a little more complicated. If a company offers both term and whole life insurance, they’ll almost certainly offer a convertible option. What you need to consider is whether you will want a permanent policy offered by that company, as there are major differences between providers when it comes to permanent life insurance. Canada’s big three life insurance companies (Sun Life, Great West Life, and Manulife) offer the most flexible permanent (whole) policies on the market, including universal life insurance. Some bank-owned life insurance providers offer basic permanent policies, but they’re generally less sophisticated than the stand-alone companies.