6.2 Renewable vs Non-Renewable Term and Conversion Privileges

Renewable versus non-renewable

CISRO’s term list pairs renewable and non-renewable insurance with convertible term. Independent OpenExamPrep material here helps you study those privileges as contract clauses, not as marketing adjectives. Two policies can both be “Term 20” and treat year 21 completely differently.

Renewable term gives the policyholder a right to continue coverage when the current period ends without submitting new evidence of insurability. The insurer cannot demand a medical, blood profile, or “any change in health” questionnaire as a condition of that renewal. What the insurer can do is charge the renewal premium in the contract, almost always based on the life insured’s attained age (and the original or current rate class the contract specifies). Renewal is available only to a maximum age printed in the policy — commonly into the 70s or 80s, and on some Canadian level-term series by annual renewal after the level period toward age 100, after which premiums may stop while a reduced or paid-up-style continuation applies. Read the specimen; do not memorize one carrier’s age 71 as a national statute.

Non-renewable term has no such right. On the expiry date the risk ends. The only ways to have individual coverage the next morning are (1) exercise a conversion privilege that is still alive, or (2) apply for a new policy and be underwritten as a new applicant. If Jordan is uninsurable on that morning and the term was non-renewable and non-convertible, there is no individual replacement at any price from that contract.

Renewability without convertibility still leaves a client who will need coverage for life exposed to premium shock and to a hard stop at the maximum renewal age. Convertibility without renewability still lets them lock in permanent coverage before expiry, which is often the more valuable clause once health has changed.

ART/YRT versus 10-, 20-, and 30-year level term

Annually renewable term (ART) and yearly renewable term (YRT) are the same idea: the period is one year. Each anniversary the owner may renew without evidence and the premium steps to the next attained-age rate. Year one is the cheapest term premium for that face because the insurer is only covering a 35-year-old for twelve months, not averaging the next twenty years of mortality. By year 15 or 20 the annual bill has often overtaken what a level Term 20 would have charged from the start.

Level term 10 / 20 / 30 (and 15, 25, 40 where sold) guarantees a level premium for that initial block. The insurer is averaging the rising yearly cost of insurance across the block, so the year-one premium is higher than ART and lower than a 30-year level for the same applicant. At the end of a Term 10, a renewable contract does not keep the old $42 a month; it re-prices a new 10-year (or annual) block at age 45. That jump is the number you must put on the table when a client “just wants Term 10 because it is cheaper,” if the need is actually 22 years of child support.

YRT also appears later as a cost-of-insurance choice inside universal life. That is a UL pricing method, not a standalone Term 20. Do not answer a “Jordan’s Term 20 is ending” stem with UL YRT versus level cost of insurance (LCOI) unless the stem is actually a UL file.

Hypothetical illustration only (not a quote) for $500,000 on a 35-year-old:

Some Canadian carriers also offer a term exchange (for example, moving a Term 10 to a Term 20 or Term 30 without new evidence inside a short early window, sometimes the earlier of a fifth anniversary and a stated age). Exchange extends the level term. Conversion changes the chassis to permanent. Do not use the words interchangeably on the exam.

Conversion privileges: window, plans, evidence

Convertible term is a contractual option, not a courtesy the claims department might grant. The owner may convert all or, where the wording allows, part of the remaining face amount into a permanent policy on the same life, with the same insurer, without new evidence of insurability. That last phrase is the exam gold: diabetes, a cancer history, or a new hazardous occupation that would sink a new application does not block a conversion that is still in force.

What “without evidence” does not buy

• A larger face than the convertible amount (current term face, sometimes reduced by partial conversions already taken).
• Riders or extras the conversion clause does not carry over (a new waiver of premium, accidental death, or children’s term often needs underwriting).
• A permanent plan another company sells, even if it is cheaper.
• A plan this company sells that the conversion schedule does not list.

Which permanent plans. CISRO’s permanent trio is whole life, Term-100, and universal life. Conversion wording is narrower than “any permanent brochure in the advisor’s bag.” Typical Canadian term contracts list some combination of the insurer’s then-current whole life, T-100, and UL series. A participating whole life with a rich dividend scale, a stripped T-100 with little CSV, and a UL with YRT charges are not interchangeable recommendations; they are the menu the clause actually opens. If the clause is “convertible to any permanent plan we offer except term-to-100,” then T-100 is off the table even though it is permanent duration. Confirm the list on the policy pages you inventory in sub-component 1.2.

Conversion window. Two clocks usually run at once, and the privilege dies at the earlier limit:

1. A duration limit — during the initial level term, or only the first 5, 10, or 15 years, or not during the last 5 years of a Term 20.
2. An age limit — often the policy anniversary nearest age 65, 69, 70, or 71, depending on the series (carrier illustrations in the Canadian market commonly use a cap in that band; RBC Insurance’s consumer term page, for example, describes conversion to permanent or UL prior to age 71 with no health questions — that is one company’s rule, not CISRO’s).

Once the window closes, health is irrelevant: the option is gone. Diary the date the way you would diary an option expiry.

Price of conversion. Insurers do not charge a separate “conversion fee,” but the new permanent premium is almost always an attained-age rate for the permanent product, using the original (or contractually mapped) risk class. A 35-year-old Term 20 converted at 50 does not keep 35-year-old whole-life rates. Original-age conversion, if it exists at all, is a specific extra, not the default. The owner should compare conversion to shopping a new permanent policy only if they are still insurable. If they are not, conversion is often the only individual permanent path left.

Partial conversion. Jordan may convert $250,000 of a $750,000 Term 20 to T-100 and leave $500,000 of term in force, if the contract allows. The remaining term keeps its own renewal and remaining conversion rules.

Suicide and contestability. A conversion issues a new permanent contract. Whether the two-year suicide and incontestability periods (typical under provincial Insurance Acts — confirm in the exam e-book) restart or credit the original term issue date is wording-specific. Teach the principle for this module: no new medical evidence; then read the clause rather than inventing a Canada-wide restart rule.

Worked file: Jordan Chen, 48

Jordan bought a 20-year renewable and convertible $750,000 term at 38. In year 10 he is diagnosed with a condition that would now be declined. The mortgage has 12 years left; he also has a child who will need support well past age 68.

• He can renew at 58 without evidence, but the new term rate will be attained-age 58 and will not solve a lifetime need that outruns the max renewal age.
• He can convert $750,000, or a slice, now, to a listed whole life, T-100, or UL, without a new medical.
• He cannot apply to Insurer B for cheap Term 30 at standard rates; that is a new application.
• If he waits until age 71 and his contract’s conversion cap is the anniversary before 71, the privilege is gone and so is standard-rate individual coverage.

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