Renewing term insurance

As an insurance specialist, we are often asked to help when term insurance policies are up for renewal on the 10th or 20th year. This is when clients get a shock with the increasing premium rate. Some clients have forgotten about the policy, and it has renewed twice (i.e., Past the 20th year on a ten-year renewable term policy). Each time this happens, there is an adjustment upwards due to increased age. That is natural and totally understandable. What exaggerates this increase is that the insurer has no chance to check the health of the policyholder. This means the new premium must account for the fact that some people may have added a few pounds or picked up bad habits or become ill along the way. What is the solution?

If the insurance plan is designed right from the beginning, this inevitable bump up in rates can be avoided. We normally recommend pairing up risks with the right duration of coverage. For example, if you have a 25-year mortgage, clearly a ten-year term plan will not suffice. Similarly, if your children are teenagers, you may only need to provide for them for another 10 years and not longer. We will often combine layers of coverage for different durations for a given client based on multiple duration objectives. Since typically the need for insurance reduces over time, we ladder 10, 20, and sometimes longer-term durations all in one policy. This way as renewals come up, they can drop that portion of the insurance and retain the longer-term plans and decrease premiums instead.

If suitable, we include a permanent component as a core benefit that will always be there to protect the family. For permanent needs like final expenses, obligations to certain family members, charitable bequests, etc.

What to do if you are already in a term policy and expect to get that increased premium notice in the next few years? Be proactive! Waiting till the last moment often results in disappointments. Either it takes too long to get approved, and you are stuck paying the higher premium, or you receive a rated offer that is more expensive than the renewal rate because of a health change. It is better to get ahead of that event with the right duration coverage.

Consult a professional insurance advisor to navigate these options to ensure you are protected today and continue to have what you need tomorrow.