Term life insurance isn’t forever. Here’s how to decide what to do.

When Ina Ervin’s bought term life insurance almost a decade ago, she had one child, and her coverage was perfect for her household at that time. But recently, as her renewal date crept closer, she sat down with her advisor to figure out a new plan.

They agreed that her coverage was not quite what she needed anymore – the Vancouver-based realtor’s first born is now 13 years old and she has two younger children, aged four and three.

“I wanted to make sure that if anything happens to me, especially while my children are young, that I would have some money behind to take care of them,” she says.

Ervin needed more coverage, and for an extended term, as her younger kids would require financial support longer than her teen would. She also had to act quickly, and make sure she didn’t allow her insurance to reach the end of its term and automatically renew — if she did, she’d be stuck at her level of coverage and her premiums could spike.
 

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Many Canadians find themselves in similar situations. They buy term life insurance, as it’s straightforward and affordable — especially for those buying in their 20s or 30s — and then they forget about it. But at renewal time, term life gets a bit more complex. Here are some questions you might have about term life insurance and how to wisely navigate the renewal process.

Q: Does term life expire?

A: The “term” in life insurance does mean something: your policy has the equivalent of an end date, be it five, 10, 20 years or whatever you agreed to when purchasing the policy. It can be easy to lose track of an expiry date when you signed up for the insurance years ago.

When the term ends, your insurance coverage and the premiums you’ve been paying stop. At this point, with most policies you have three choices: you can either let it lapse, allow it to automatically renew, or you can apply for new life insurance.

Q: What if I want to stop it?

A: If you don’t want your expiring policy to automatically get replaced with a new term, you need to tell your insurer that you’re finished with it and will no longer be paying premiums.

That might be just what you need: if your children have moved out and your mortgage is paid off, then you may not need term coverage, though another life insurance product could be appropriate, depending on your needs.

Q: What happens if I let it renew?

A: Most term life policies come with a renewal clause. This lets your policy automatically re-up once the term ends for a set period of time. You can also convert it into a whole life policy that will cover you for the rest of your life, no matter how long that is. If you do that, you don’t have to reapply for the insurance, or qualify again.

An automatic replacement sounds like an easy choice, but you could end up paying premiums that are much higher than if you applied for new coverage, says Bernie Geiss, president of North Vancouver, B.C.-based Cove Continuity Advisors Inc.

Automatic replacements can be more expensive, because insurance companies assume that you have certain health conditions that would increase the probability of a claim. This options is best for those who have a health condition such as cancer, diabetes, high blood pressure and other ailments that might impact your ability to get new coverage.

Q: How does it work to get new coverage?

A: Either just before your term life ends, or in advance of that date, you can apply to get new life insurance. Doing something between six months to two years before a policy expires is recommended, says Geiss. The earlier the better if you are in good health but worry that, due to your age, you risk getting a new diagnosis before your term wraps up.

“If someone can guarantee a rate today, they may want to take that policy instead of taking the risk of not getting coverage later on,” Geiss says. “What we try to do is get clients to start this process in advance, so they have the ability to make a decision without a gun to their head,” he says.

You may want to get a new term even earlier, if your life has changed a great deal. If you took out your old policy when you had a child and a starter home, and now you have three kids and a multi-million dollar abode, then an early replacement may be needed.

Q: What’s best for me?

A: The only way to truly assess which path to take with term life insurance is to speak to an advisor. A professional can help you look through your policy and understand which of these and other options are available to you.

An expert can also help you assess how much your life has changed since you first purchased your policy. Whether or not you have a mortgage, young children, a business or other factors in your life that might still need coverage from life insurance will impact how you move forward.

In Ervin’s case, she wound up replacing her 10-year term policy with new, 20-year term life insurance one year before the term was up, as it would allow her to better cover the needs of her now larger family.

“A lot of people haven’t walked through how much insurance they need and they just pick a random number,” she says. “I think it’s really important that whomever you’re getting insurance from looks at what your actual needs are. I’m really grateful that [my advisor did that] and figured out that my needs had changed.”

The opinions presented are not necessarily those of The Canada Life Assurance Company and are provided for informational purposes only, your circumstances may be different. 

To learn more about this product and if it’s right for you, contact a licensed insurance advisor.