Another Canadian insurance company just announced a decrease in their term life insurance rates as competition in the term life insurance market continues to grow. If you own a term life insurance policy in Canada, should you get a new one now and take advantage of the lower prices?
Our experience is that any price savings from lower premiums are more than offset by the increased premiums you would pay due to being older than when the policy was originally purchased. The exception is if you are within six months from the end of the term on your policy (two years for Canadians in their 50’s or older) and realize that you still need life insurance.
Here are three reasons to consult a life insurance advisor well before your current policy expires:
1. The Renewal Process Often Accompanies a Delayed Testing Process
The primary reason to replace life insurance early is health. Renewing now (or even one year prior to the end of the term) eliminates the risk of a health issue arising that would make it either impossible or very expensive to purchase a new policy at the end of the term. A health issue can be as simple as a medical issue that requires tests. These tests can take months to schedule and receive results from. Until there are no further tests required and the results are known, you are essentially uninsurable.
This happens far too often when the decision to get a new policy is left to the end of the term. One client was delayed 9 months as he underwent tests for asthma including specialist appointments. Having to renew an existing policy at the end of the term can cost four times what the replacement policy would cost.
2. Renewing Early Can Result in Sizable Savings
There can be significant savings compared to waiting until the end of the term to renew. For example, a 60 year old will save $30 per month ($117 compared to $147 per month) if they renew a $250,000 ten-year term policy two years early (based on a healthy 60-year-old non-male non-smoker).
It is also possible to require less insurance than the original policy. In this case, the monthly premiums could be closer to the cost of the previous policy.
3. Leverage Options of a “Decreasing Term Policy”
If life insurance needs will decrease over time, more money can be saved by considering a decreasing term policy. Continuing the hypothetical example above, a decreasing term policy could further reduce the cost to $93.15 per month. In this case, the insurance coverage slowly decreases to half the initial face amount or $125,000. We have now saved $53 (compared to renewing in two years at $146). A 50 year old would not have significant savings using this option.
Start talking to your advisor a couple of years before the end of the term to determine if you should replace your existing policy with a new one now. The decision will depend on how much life insurance you require, and for how long you will require it. Consider a decreasing term policy to save more money if your needs will continue to decrease over the next ten or twenty years and you are over the age of 55 or a smoker. If you are in good health, consider doing it up to two years early but not later than six months before the end of your current policy’s term.