Renewable vs Convertible Term Life Insurance in Canada

Why does convertibility and renewability matter when it comes to choosing term life insurance? Simply put, these features ensure flexibility and guarantee future insurability.

In fact, if you are currently looking for term life insurance, knowing what these features are, why they matter, and how they differ can help you land the best policy for you.

So, let’s break it all down. 

Key takeaways

• Renewable term extends your term life insurance policy without a new medical exam. 
• Convertible term switches your term policy to a permanent one
• Never opt for a term policy that isn’t convertible or renewable, unless you have no other option 
• Canadian insurance providers often include both features in term contracts, but conversion windows, age limits, and deadlines vary

Renewable vs Convertible Term Life Insurance 

Most term life insurance policies offer the option to be renewed and/or converted for no additional cost.  

Renewable means you can keep your coverage going after your original term ends without the need for a medical exam or health questionnaire. If you have a 10-year term policy, at the end of the 10 years, you will have the option to renew it for another 10 years with new premiums based on your current age.

Convertible means you can switch your term insurance (within a certain window) into a new permanent life insurance policy (whole life or universal life) without the need for a medical exam. Permanent life insurance also offers additional long-term benefits that could be valuable as you age.

Both features help keep your coverage options open even if your health changes, ensuring future insurability.

At McIver Insurance, we help Nova Scotians understand these options in simple terms so they can choose what fits their life stage, health, and financial goals.

Renewability in Practice

How Renewability Works?

After your term ends, you can choose to exercise your renewable option to ensure continued coverage automatically. To do this, you don’t need to undergo a new medical exam or screening process. Your premium simply resets at a higher rate based on your current age. 

This is hugely beneficial as it means that your policy will be renewed regardless of your current health. You could be diagnosed with a terminal illness (which would practically make you uninsurable), but still be able to keep coverage with ease.

Renewable options in Canada are easy to exercise with virtually no barriers. All you need to do is notify your insurance broker or provider that you intend to renew, and they will take care of the rest. 

However, what many people don’t know is that you can also ask your insurance provider to re-qualify you. 

Re-qualification or re-applying can be beneficial in cases where you are in great health for your age. You may have to undergo a medical exam, fill out a questionnaire, or go through a screening process all over again, but this can help reduce your risk factor, resulting in lower fixed-term premiums. 

Renewable options on term policies can be used until a tied maximum age (usually 75–85), depending on the insurer. 

Pros of Renewing

• Keeps coverage in place even if health declines. 
• Easy, convenient, and automatic.

Cons of Renewing

• Premiums can rise considerably at each renewal if you don’t opt to re-qualify
• Coverage can be limited or reduced due to an increase in perceived risk
• Can be more expensive than shopping for new coverage if you’re still healthy. 

Convertibility in Practice

How Convertibility Works?

A convertible option on your term life insurance policy allows you to convert your term policy for a permanent life insurance policy during a conversion window, which is usually at the end of your term or at certain anniversaries (e.g. every 5-10 years).

Permanent life insurance isn’t like term life insurance. This is a policy that remains active until your day of passing and, as such, is more expensive, has lower coverage limits, and a much more stringent underwriting process. 

Whole life insurance also has a cash value component, which can serve as an additional source of retirement savings. As you pay your premiums, a percentage of that premium is invested in a guaranteed cash value account, which can be tapped into when needed or upon retirement. 

While no medical exam is required to convert a term policy to a permanent one, you must understand who and what this policy is for. Permanent life insurance policies are usually bought by high-net-worth individuals as it helps with estate planning and fulfilling long-term financial goals. Consulting with an insurance broker or financial advisor is recommended before opting for convertibility. 

You can also choose to re-qualify if you are in good health to benefit from lower premiums. This is recommended as even a small reduction in premiums can amount to a considerable amount over your lifetime.

Pros of Converting

• Locks in lifetime coverage without the need to re-qualify or take a medical exam.
• Offers a cash value component
• Helps with estate planning, business succession, or supplements retirement income
• Eliminates the risk of being denied coverage later due to age or health

Cons of Converting

• Premiums are higher than those for term life insurance.
• You must convert before the stated deadline.

When to Renew vs When to Convert

Insurance providers that offer term life insurance will likely offer a renewable option. However, just because you have the option doesn’t mean you have to use it.

Renewing only makes sense if you need coverage for another 10-20 years, you have a tight budget, and your health isn’t what it used to be. Simply put, if you are getting quoted higher premiums or even being denied coverage whilst shopping around, exercising this option is in your best interest. 

Insurance providers that offer term and permanent life insurance will most likely offer a convertible option on their term life insurance policies. Make sure you note down what your conversion window is so you have time to make an informed decision.

Converting makes sense if you want lifetime coverage and a way to save additional money either for retirement or emergencies. Again, converting a term policy will often be more expensive than shopping around for a new one, so this only makes sense if your health has deteriorated. Opting to convert can offer a variety of benefits that can be instrumental for estate planning and business succession. Consult with an insurance broker to learn more.  

Shopping checklist

Before you buy or renew, ask your broker:

• Does my policy include renewable and convertible options?
• What are my conversion deadlines and maximum renewal age?
• Can I convert all or part of my coverage?
• Can I get a current renewal cost projection and conversion illustration?
• When should I plan to make a choice?

The more questions you ask, the more informed decisions you can make to safeguard you and your family’s financial future.

Term and Permanent Life Insurance Plans for Nova Scotians

Life insurance offers financial protection for your loved ones and gives you, the policyholder, much-needed peace of mind. It is an essential part of financial security, and thanks to digitization, it is easier than ever to get.

However, deciding what to get based on your needs is a different ball game. It requires careful deliberation and expert advice from an insurance broker you can trust. So, whether you’re looking for life insurance, disability insurance, or critical illness insurance, Pat McIver with McIver Insurance in Halifax has your back!

Call 1-902-220-3279 now, or book a FREE no-obligation meeting with Nova Scotia’s leading insurance broker.

FAQs

Can I both renew and convert?

Canadian term policies offer both features. You can decide to renew and then, in your next conversion window, convert to permanent life insurance.

Do premiums always go up at renewal?

Yes. Premiums will always be higher at renewal as you will be older, meaning you will have a higher risk level. 

What if I miss the conversion deadline?

You might still be able to renew if the policy allows, but the no-medical conversion right will most likely be lost. 

Where can I learn about my options, terms, and conditions?

Everything should be mentioned in your policy contract and schedule. If you require further clarity, speak to a trusted insurance advisor.