Term Life Insurance Renewing soon-reading this could save you money.
Should you renew that old term life policy?
The other day a 67 year old client called asking about her Term 10 life insurance renewal notice sent by Canada Life. Margaret’s policy was guaranteed renewable and convertible to permanent or renewable for another term 10 life insurance policy without the hassle of a medical and health underwriting. These features and benefits are contract terms and can be very helpful if your health is suffering, or unforeseen medical condition such as heart attack, stroke, cancer or diabetes appear unexpectedly.
Her first term10 policy premium was $40 per month. Canada Life quoted her $201.11 for a $130,000 term 10 policy, again with guaranteed renewal and convertible terms.
We did our due diligence search for best products; we reran our quote engine to search for a new policy. Empire Life quoted $96.34 per month, a savings of over $12,000 over the course of the next 10 years. Of course she would have to reapply and requalify with full medical and underwriting. Thank goodness she was in excellent health.
Why this large discrepancy between the old term policy, the renewal policy and new life insurance policy? Insurance companies bake these guaranteed renewal premiums into their mortality tables with a level of risk equivalent to smokers premiums, health risk premiums or no underwriting premiums similar to mortgage insurance sold by your bank (also with no underwriting). People who decide to renew expensive term policies make more claims.
Caution never cancel or let a term policy expire until your new policy is in place so you are uninsured. Only cancel your old policy after your new policy is approved then issued.
Cost Benefits of Guaranteed Renewal and Convertible Options
- Term Life Insurance policy automatically renews.
- Guaranteed, and has its privileges: no medical, no reapplying, and no underwriting.
- Eliminate the risk that you might not be approved due to age or medical conditions.
- Provide same amount of insurance (face amount)
- Maximum Age Limit usually past your 80th birthday
- Privileges cost twice the amount of new policy monthly premiums
- Premiums on renewals are more expensive because folks in poor health renew at the higher premiums and make more claims due health issues
- Not all term policies polices have renewal guarantees
- Premiums on new policies are cheaper than renewals because most folks who are in good health will apply for a new policy
- Longer term 20 and 30 policies are more expensive because the likelihood that the insurer will have to pay out increases with age