Term Insurance – When is the renewal?
The name “Term Insurance” is meaningful because it’s insurance for a specified “term”. The premiums and the benefit will be level (in most cases) for the duration of the contact. So for a $500,000 term-20 policy; the premium will remain unchanged and the benefit of $500,000 will stay the same too…for 20 years. It’s very important to know the year and month that a policy will renew.
What happens at the end of the term? This is where many Canadians are in the dark. Insurance companies will renew the policy without any medical questions or (what we call) evidence of insurability until the insured person is 85 (in most cases), at which time the insurance company cancels the policy.
You say, “that sounds great, but what’s the catch?” – I’m glad you asked because there is a HUGE catch. At the end of original term of the policy the insurance company assumes that you are no longer healthy enough to qualify for a “new” policy. In other words, they assume that you are at death’s door. By doing this, the price will be 4 to 10 times higher…maybe more. This prices the policyholder out of the policy and it will most likely be cancelled. Imagine your premium going from $70/month to $700/month!!
The insurance company will send you notices stating that the policy is automatically renewing soon and they will attempt to withdrawal the new amount from your bank account, unless you send a written request to cancel the policy. Most people forget or don’t respond to the notices or haven’t even received them. Maybe they moved and didn’t update their address with the insurance company. As a result they see the new payment come out of their bank account (by the way – the old advisor who didn’t let contact you about this just got paid for that renewal too!! – ouch). This “surprise” premium withdrawal triggers a phone call to the insurance company, they tell you to call your advisor or fax in a cancellation letter. This chain of events leaves you and your family exposed to risk because you’re uninsured…not to mention frustrated.
Having a trusted advisor and service agency that will notify you prior to the renewal will save you money and protect your family. They will help you replace the old policy with a new one, or have the old policy cancelled at your request before the renewal date.
As a side note, it’s important to ensure that you purchase the proper policy from day one. Buying a shorter duration policy (i.e. 10 years) and replacing it later when insurance protection is needed for an additional period of time may be much more expensive then purchasing the longer duration policy (i.e. 20 years) from the start.
The Bottom Line:
Know your renewal date and make sure that your life insurance advisor knows it too!
Please feel free to contact us if you have any questions or would like one of our licensed, friendly representatives help you manage your insurance needs.
*This article is for information purposes only and is not intended as specific advice for any individual. Please review your policy contract for complete details of your existing coverage and speak with a licensed professional (like Jonathan) if you have any questions or concerns.