Life and health insurers in Canada pay over $1.6 billion a week in benefits to policyholders. In 2016 alone, payout benefits totaled a whopping $88 billion.
Today, there are some 22 million life insurance policyholders in the country. Together, they own policies having a combined $4.7 trillion value.
As one of these policy owners, you've enjoyed the peace of mind your life insurance gives you. But there are situations wherein your current policy may no longer meet your needs. In this case, you should consider life insurance conversion.
What situations are these and how do you get your existing policy converted? All these questions and more we'll cover in this post, so keep reading!
Why You Should Convert Your Current Life Insurance Policy
There are plenty reasons policy owners want (or need) to convert their current life policy. We've listed some of the most common below.
Expiring Term Life Insurance
Most people who opt for conversion are those with expiring term life insurance. For example, their 20-year term policy is about to reach its 20th year. If they don't renew or covert the policy, they no longer will receive coverage.
Converting term to whole life is a feature most term policies come with. But not all term insurers offer this feature -- either you renew your current policy or buy a new one altogether.
That said, if you're new to term life insurance, go with an insurer offering this feature. This way, you can choose to convert your term life insurance as needed.
Major Life Changes
The best time to buy life insurance is as early as possible, which is why you bought one when you were still single. But three years into your policy, you got married, and then you had your first born a year after.
These are all major life changes, which means your current policy may no longer be enough for your family. You've got more than yourself to think about now, so it's a good time to consider a policy conversion.
Current Policy is Too Expensive
The biggest appeal of permanent life insurance is its investment component. But because of this cash value benefit, it's also more expensive than term life.
You may have been able to afford permanent life before, but what if you recently lost your job? Before you start wondering how to cancel life insurance, consider converting it first.
Your insurer may allow you to convert your permanent life to a cheaper life insurance policy. While term insurance doesn't have the investment component, at least you'll remain insured.
The Life Insurance Conversion Process
The most reputable insurance companies, such as Manulife, offer convertible life insurance. Each insurer has their own conversion process though, particularly the allowable "convertible period". This refers to the specific time wherein you can make changes to your current policy.
Once you've decided to push through with the conversion, inform your insurance company. They'll ask you to fill out forms, which will include the details of your new policy.
Expect questions like which type of policy you're converting from and to which. You likely also have to provide your reasons for wishing to convert. Be honest, as your insurer will use your answers to help you figure out your best conversion option.
Unless you're converting because of major health reasons, you may not need a medical exam. But make sure you also tell your insurance company about any major health change. Especially if you've become healthier or quit smoking, as this may get you a discount!
Converting Employee Life Insurance to Private Insurance
The conversion process for employer-issued life insurance is often different from private insurance. But it's still doable, so consult your HR department about getting it converted. Reputable insurers may allow you to change this into an individual policy.
It’s a good idea to make this change way before you retire, so you can secure better insurance rates. In case you can't convert it though, you should consider getting supplemental insurance. Private insurance gives you more flexibility, plus you can make sure it's convertible.
Your insurer will review your completed forms and make the necessary administrative changes. How long this will take depends from one company to another, but it shouldn't take months. That said, it's best you start the conversion early, especially if your term policy is about to expire.
If you're converting a term policy to a permanent one, consider doing it soon. The earlier you convert a term policy to a permanent one, the sooner you start building cash value.
Reminders Before Converting Your Life Insurance Policy
Before converting, take as much time as you can to compare various policy offers first. You want your new policy to have similar benefits, or at least not render you underinsured.
Be sure to check for waiting periods too, especially for when the death benefits take effect. If you're working with the same insurer, this shouldn't be an issue. But still, it's best to ask them as you don't want to go uninsured even for a short time.
If you have permanent life, it's possible you've already accumulated some cash value. You may be able to use it (or at least some of it) as part of the premium payments for your converted policy.
If you're thinking of canceling and going with a new insurer, make sure you have a new policy already! Again, new policies have waiting periods before their benefits take effect. Dropping your current policy without a replacement can put you at financial risk.
You may have to pay a considerable upfront fee if you're converting from term to permanent. So, check your finances to ensure it can afford both the upfront cost and higher premiums.
Ready for a (Much Better) Change?
Life insurance conversion is often necessary, especially with major life changes. Job loss can make your existing policy too expensive, but you know you shouldn't drop it. Whereas getting married and having kids often requires a policy upgrade.
Whatever your reason for needing a conversion, don't delay getting the process started. Besides, we can help you explore your options and find more affordable replacements. Ask us for a quote now and we'll give you a list of life policies with the lowest rates in Canada!