Renewable & Convertible Life Insurance for Canadians

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 policy

When you renew a life insurance policy, you generally don’t need to re-qualify, a process that normally requires a new medical exam or questionnaire. Be aware that just because your policy can renew, this doesn't mean that your payment remains the same. A renewal exposes your life insurance company to additional risks as you age, so your premiums will increase as a result when you renew factoring in your current age. You do have the option to elect for re-qualification process and 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.

Beyond the flexibility and connivence that comes with a renewable policy, the big selling point is 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).

Cons of renewing a policy

While the pros generally outweigh the cons for this type of policy we do need to acknowledge them:

1. 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.
   
   
2. 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.
   
   
3. 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.

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.