Expiry of Your Manulife Engineers Canada Term Life Insurance
Since the inception of the Engineers Canada Plans, there have been many iterations over the years. Prospectively, there is only a single ‘version’ of this product, however it means that if you are already a policy owner, depending on when you originally purchased the product there may be some grandfathered provisions/features. One important area in which there are still some deviations is with respect to expiry/termination dates of policies.
If you have purchased your policy since 2009,
your policy is designed to terminate upon attaining age 85.
If you have purchased your policy prior to 2009,
your policy is designed to terminate upon attaining age 75.
However, in 2009 if you were over the age of 66 at that time, you would have been offered the option to convert your policy to the new termination age of 85. For those under the age of 66 in 2009, your policy would be automatically converted such that it terminates at age 85.
Expiry of a Key Benefit Provision – Your Conversion Privilege
The Conversion Privilege (aka Conversion Option) offers you the ability to ‘convert’ some or all your Term Life insurance into Permanent Insurance, which can be an extremely valuable benefit for a variety of potential reasons (more on this later).
This benefit is modified at age 65, and later terminates at age 75.
Prior To Age 65Up to age 65, the Conversion Privilege benefit allows you to convert 100% of your active coverage to Permanent Life insurance. Prior to turning 65, you have the most options available to you.
Between Age 65 and Age 75Upon attaining age 65 the conversion amount reduces from 100% of your active coverage to a maximum of $200,000.
Age 75The conversion privilege expires altogether, meaning no amount of your active coverage can be converted to Permanent Life insurance.
What is the Conversion Privilege and why is it important?
The conversion privilege is a valuable policy provision that is often overlooked and/or ignored.
To truly understand the value of your conversion privilege, it helps to understand a little about the process of applying for life insurance, and something called medical underwriting – which is integral to that process.
Whenever you apply for a new life insurance policy, medical underwriting will generally be required. Medically underwriting means that there are medical questions on the application, the insurance company may write to your physician to obtain a copy of your medical records, and you may need to provide a blood/urine sample and potentially some additional items confirming your health status.
Once the insurance company has all this information, they will then review it all concurrently and will come back to you/your advisor with ‘offers’ for coverage. Depending on your health at the time, the offers you receive may contain exclusions for pre-existing health conditions or contain a rating (i.e. an additional premium is charged on top of the normal rate), or in some cases people are declined for coverage altogether.
A conversion privilege means that regardless of your health status and without the need for medical underwriting, you can convert some (or all) of your active coverage to one of several permanent insurance options.
By converting to Permanent Life insurance, you cannot outlive the insurance asset as a benefit regardless of how old you are when death occurs.
The premium rates you would pay are fixed and guaranteed for the life of the policy and are the same competitive premium rates an individual would have to pay if they went shopping today, but subject to their having to provide current satisfactory medical evidence.
Because your ability to apply for life insurance is contingent upon your ability to qualify medically and given that the state of one’s health cannot be known in the future - having the option to convert your Term Life insurance to Permanent Life insurance at a time when you otherwise may not qualify can be an incredibly valuable feature.
It can be valuable to; your spouse, your children, your grandchildren, preserving the value of your estate, and potentially even to a charitable cause should you later wish to donate your policy.
Let’s Illustrate using an example with two different scenarios, each with their own vastly different outcomes:
Without A Conversion Privilege
Imagine for a moment that you are diagnosed with cancer or a heart attack at some point in your life. Now imagine, that you own a Term Life insurance policy, but your policy (for whatever reasons) does not include a conversion privilege.
You decide because of your health experience that you want to ensure that your spouse and dependents are taken care of when you die – maybe even leave some money to a charitable cause that is important to you. You know that your Term Life policy will expire at age 85, so you decide to apply for a new Permanent Life insurance policy – something that is guaranteed to pay a benefit regardless of what age you die.
You contact your advisor, and you complete the paperwork together. The insurance company follows its regular medical underwriting procedures; asking you to complete medical questions, writing to your physician to obtain your medical records, and asking for a blood/urine sample etc. The insurance company then reviews all this information and…ultimately decides that they do not wish to issue a new life insurance policy on your life given your health history
What can you do?
Unfortunately, there is not much that you can do. If you ultimately die after your Term Life policy has expired, your family will be left not only without you - someone they love and cherish, but also without any insurance proceeds. Add to that the insurance company has collected premiums from you for years, but never has to pay a benefit. A miserable scenario indeed.
With A Conversion Privilege
Now, let us imagine a different slightly more positive scenario. Same as before, you have been diagnosed with cancer or a heart attack at some point in your life, and you also own a Term Life insurance policy – only this time your policy does include a conversion privilege.
You decide because of your health experience that you want to ensure that your spouse and dependents are taken care of when you die – perhaps even that charitable cause. You know that your Term Life policy will expire at age 85, so you decide to exercise your Conversion Privilege by converting some (or all) of your Term Life into a new Permanent Life insurance policy – something that is guaranteed to pay a benefit regardless of what age you die.
You contact your advisor, and you complete the conversion application form together. The insurance company then follows its regular procedures by issuing you a brand-new Permanent Life insurance policy. No need for medical underwriting, and no need to qualify medically. That’s it, you’re done and you now own Permanent Life insurance.
This time, when you ultimately die your family will benefit from the proceeds of the Permanent Life insurance policy – all because your policy had a built-in Conversion Privilege and you made the choice to utilize it.That is why a Conversion Privilege is a valuable feature. Sadly, many aren’t aware of it, or they become interested in these things after their Conversion Privilege has been modified or expired – leaving them with fewer options than they would otherwise have open to them.