Should You Renew Your Life Insurance Policy?
What is a life insurance renewal?
Life insurance renewal is when you renew your policy when your term life insurance ends to extend your coverage. This feature is also called “guaranteed renewability.” It’s available with most term insurance policies in Canada, although renewal may or may not be automatic.
Many term life insurance renewals are annual, but you may be able to renew your policy for five or even 10 years, depending on your provider. Term life insurance policies with PolicyMe include renewability for one year at a time after your term ends so that you can decide whether to keep your life insurance coverage based on your changing needs and budget.
A renewable term life insurance policy can be renewed when your term ends, or by a certain date based on your policy’s structure.
Pros and cons of life insurance renewal
How much does it cost to renew term life insurance?
It typically costs about 3x more per month to renew a term life insurance policy than your previous premiums. Renewal premiums are based on your age at each annual renewal, so you can expect rates to rise every single year.
Auto-renewal keeps your coverage the same year after year, but it does not preserve the rate.
Existing costs: Say you’re paying $10 every month at 25 years old for a 30-year term policy worth $500,000. When you turn 55 and your term is about to end, you realize you still have a few years left on your mortgage.
Renewal costs: Your new premium may be closer to $60 per month if you opt to renew your policy with the same $500,000 coverage on an annual basis, as rates are based on your older age. Every year, this premium will increase slightly.
Consider a new short term policy (like 5 or 10 years) if you find that you need more coverage when your term is up. Though rates will be higher because they’re based on your age, a new policy will usually be cheaper than renewal since you lock in a rate for the full length of the term.
Should you renew your term life insurance policy?
You may want to consider renewing your term life insurance policy if:
- You still need coverage, but only for a few more years
- Your health has declined and you may not qualify for a new policy
- You want to avoid the application and underwriting process for a new policy
On the other hand, renewal might not be the best choice if:
- You’re still in good health and could secure a new policy at reasonable rates
- You want stable premiums and longer-term coverage
- Your coverage needs have changed
PolicyMe offers guaranteed yearly renewals on term life insurance policies—but a renewal isn’t your only choice if you still need life insurance when your term policy expires.
Here’s how to decide what’s right foryou:
1. Know your current policy’s expiry date. The renewal process may be automatic, in which case, you’ll want to do your research well before the renewal occurs.
2. Review your current coverage needs. Use an insurance estimator tool to reassess your life insurance needs against today’s mortgage balance, debts, dependent expenses, and remaining income-earning years. Compared to your original situation, your income may have changed and your kids may now be financially independent. It may be appropriate to decrease your coverage.
3. Get quotes for a new policy. Shop around with Canada’s best life insurance providers and get life insurance quotes based on your current needs. A new policy with a smaller death benefit might be more cost-effective and better suited to your current situation than an automatic renewal (or it might not).
4. Cancel your renewal if you don’t need it. Some policies automatically renew each year once your term is up, so you need to contact your life insurance provider to advise of your cancellation.
For some Canadians, renewing a term life insurance policy might make sense despite the renewal price shock. For others, though, it can be far more affordable to apply for a new policy with underwriting. Explore your options to make an informed decision that’s right for you.
“If you have no mortgage and you have some savings to cover your family's expenses, you might not need life insurance.” — Stephanie Roux, Licensed Life Insurance Advisor
Alternatives to life insurance renewal
If you still need coverage, there are two alternatives to life insurance renewal: get a new term policy or convert to a permanent life insurance policy.
If you’re still healthy, a new term policy is probably the best choice. While renewal is convenient, it’s rarely the most affordable option.
FAQ: Life insurance renewal
Bonnie Stinson is an insurance writer and researcher in Toronto with a decade of experience producing helpful, accurate content for Canadians. They have published resources for some of Canada's most innovative and consumer-trusted companies in the health, legal, and fintech sectors.
Bonnie Stinson is an insurance writer and researcher in Toronto with a decade of experience producing helpful, accurate content for Canadians. They have published resources for some of Canada's most innovative and consumer-trusted companies in the health, legal, and fintech sectors.