Understanding Your Engineers Canada Term Life Insurance Policy

As an Association member, you have access to the Engineers Canada Insurance Benefit Plans, provided by Manulife. Whether you're contemplating a new policy or already have one, this article is tailored for you.

We'll delve into the key features and benefits of these policies, highlighting aspects you might be unfamiliar with. Some characteristics are exclusive to the Manulife Engineers Canada Plans, while others are common in similar life insurance products. A critical element to be aware of is your Conversion Privilege.

First, let's set the stage with a basic understanding of life insurance types, their functions, and intended users.

Exploring Life Insurance Varieties

Permanent Life Insurance

This category includes Universal Life and Whole Life insurance. These policies provide lifelong coverage as long as premiums are paid. Upon the insured's death, the benefit is paid to the designated beneficiary(s). Used for tax and estate planning or as investment vehicles, these policies suit those with permanent end-of-life tax liabilities or those seeking tax-sheltered asset growth. They can be considered an asset class in your financial portfolio. Due to their guaranteed payout, premiums for Permanent Life Insurance are higher compared to Term Life Insurance.

Term Life Insurance

Term Life Insurance offers coverage for a specified 'term'. Terms vary, with common lengths being 10, 20, or 30 years. The choice of term should align with your unique family and financial circumstances, best determined with the help of an authorized advisor. For instance, a 20-year policy might suit if you expect your children to be financially independent in 20 years. These policies expire at a certain age, often between 65 to 85, and are typically more affordable than Permanent Life Insurance. They are ideal for short-term planning and temporary needs.

With this background, let's examine the specifics of the Manulife Engineers Canada Life Insurance Plan.

The Manulife Engineers Canada Life Insurance Plan

The Manulife Engineers Canada Life Insurance Plan is a Term Life insurance product.

It is somewhat unique in that it has a premium schedule whereby the premiums escalate every 5-years, and the policy is renewable until it expires at age 85 (or 75 in some cases) - more on expiry guidelines later.

This product was created (originally in 1948) on the basis that your association can negotiate more favorably on behalf of hundreds of thousands of members nationally, than you can as an individual. For this reason, the Manulife Engineers Canada Term Life plan will offer a unique combination of benefits and great value – particularly for certain age groups.

We encourage you to speak with an authorized advisor who can help you ascertain if the Manulife Engineers Canada Term Life Plan is most appropriate for your age group and unique circumstances.

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 65:

Up 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 75:

Upon attaining age 65 the conversion amount reduces from 100% of your active coverage to a maximum of $200,000.

Age 75:

The 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.

Medical Underwriting

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.

What Are the Possible Outcomes for Policy Owners?

If you are already an owner of a Manulife Engineers Canada Term Life policy, (or if you are considering becoming one), one of several eventualities will occur.

You decide that you no longer want or need the coverage:

This may happen when the temporary needs that were the original impetus to buy the coverage in the first place no longer exist, and you feel that the insurance is no longer necessary to continue. If this is the case for you, you should at least be aware that depending on your health your policy may not be replaceable, and that there may be charities that are interested in continuing your policy even if you are not. An authorized advisor can help you ascertain if this is an option available to you.

The escalating premiums drive you out of the policy for cost and/or benefit reasons:

All Term Life insurance policies follow an escalating premium schedule – meaning that the premium will increase at regular intervals every 5, 10, 20, or 30 years – depending on the term length of the policy.

In the case of the Manulife Engineers Canada Term Life plan, the premiums follow a schedule whereby the premiums escalate every 5-years.

At some point this either becomes unaffordable for most people to continue, or they may decide that the ongoing cost outweighs the potential benefit.

For these reasons it is important to review your policy with your advisor occasionally such that you know in advance if/when a premium escalation is likely to occur, and you still have the maximum potential options available to you, should you need or want some (or all) of the coverage.

You claim on your policy:

In the event that you were to pass-away prematurely (i.e. prior to it the policy expiring), you would claim on your Term Life insurance policy, and the benefit would be paid to your chosen beneficiary(s).

The policy will expire prior to your statistical life expectancy:

Upon attaining either age 85, (or age 75 – subject to the plan version that you have), the policy will automatically terminate, and will no longer offer insurance protection.

This will occur regardless of whether you still have ongoing insurance needs.

You exercise your conversion privilege:

As discussed previously in this article, you have the option to convert some (or all) of your Term Life insurance to Permanent Life insurance. This must be done either prior to age 65 (to have the maximum possible options open to you), or prior to age 75 when the Conversion Privilege expires altogether.

Next Steps

Authorized Representatives from Garrett Agencies are available to support you in reviewing your life insurance planning and can address any potential questions or concerns you may have.