Auto-renewal on term life there to protect consumers: CLHIA

Life & health insurance body explains importance of policyholders understanding renewal dates

Auto-renewal on term life there to protect consumers: CLHIA
Earlier this week, CBC News reported the case of BC doctor Kevin McKechnie and his dispute with Canada Life. McKechnie is seeking a refund from the insurer, arguing that he was not informed of a premium increase on his term-10 life insurance policy, leaving him thousands of dollars out of pocket. The plan in question is subject to auto-renewal, which is standard in the industry, and Canada Life responded that: “Transparency is maintained at the time of issue by providing customers with detailed schedules of their renewal dates along with their accompanying premium increases.”

The policyholder contends he did not receive a reminder of the policy’s renewal date, as notification was sent to a prior address. 

Ron Sanderson is director, Policyholder Taxation and Pensions at the CLHIA, and in his view, insurers make every effort to make sure such oversights are avoided.

“Because these are long-term policies, auto-renewal is an integral feature,” he said. “I’m sure that individual had all the information about renewal dates and renewal premiums in the contract at the point of issue. Not everyone reads the contract, so that’s why in normal practise the advisor will go through contractual options – whether you want a flat premium or something with low initial cost and increasing over time.”

Sanderson added that even if a person takes the time to fully read their contract, it’s common that a renewal date still slips their mind. But there are measures in place to ensure this doesn’t mean a nasty surprise for the policyholder, he explained.  

“Typically, within 60–90 days of a premium renewal point, companies will send a letter to both the individual and the advisor,” he said. “That’s when they can sit down with their advisor and see if the policy continues to meet their needs. It might be that a different product is more appropriate, or there may be ways to tweak the existing contract.”

In the case of Dr McKechnie and Canada Life, a change of address meant a breakdown in communication. In such cases, the insurer makes every effort to contact the customer, noted Sanderson, but this isn’t a guarantee.

“I would dearly love to think that every letter goes to the right address and people are diligent in notifying their bank, utility company or life insurer every time they change their address,” he said. “The reality is that often doesn’t happen, so we are reliant on Canada Post returning the mail to us, and then we do our due diligence. That may mean reaching out to the advisor, or using other techniques to find the person.”

The attraction of a term life policy is that it provides life coverage at a lower initial cost, with escalating premiums at each renewal date thereafter. Those costs are pre-determined when the original policy is signed, saving the consumer going through the underwriting process at each renewal. As people age and health deteriorates, this in turn increases risk for the insurer, and premiums rise to reflect that.

It’s a basic principle of the life insurance business, and the consumer is free to cancel their policy and shop around for a better deal if they so wish. There are advantages to remaining with the same provider, however, as Sanderson outlined.

“One of the key features of renewable contacts is that they typically provide an ability to convert to a level-premium product, without any underwriting,” he said. “People can get permanent coverage without going through a medical.”

He added: “The important thing for the consumer is having existing coverage under that policy, yes it will cost more, but it’s better to have that in place then take your chances and let it lapse,” he said. “Is it reasonable for the insurer to charge less for what they think is increased risk?”

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