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Life Insurance Exchange Options Explained

06/14/23

Transcript

In this video, we’re going to look at the exchange option found in many term life insurance policies in Canada.

In the first five years of a term life insurance policy with the exchange option, you can do a direct swap for a longer-term without any medical evidence.

So if you’ve purchased a term 10 policy with the exchange option, in the first five years you can swap it out for a brand new term 20 or term 30 for example.

Now importantly, the new policies’ premiums will be whatever the company is charging for your age at that time.

There’re two common reasons you might look at the exchange option. The first is budget. If you’re looking at a longer-term but it’s not in the budget, you might consider purchasing a term 10 policy with the exchange option. Then, when your budget frees up in the first five years, swap it out for the appropriate term 20 or term 30.

The second reason for the exchange option is for people who are smokers and have the associated higher premiums but are planning on quitting in the next few years. In that case, the exchange option can save you substantially in the earlier years of your policy. That’s going to require a little bit more of a longer conversation so we’re going to cover that in our video on life insurance for smokers.