What is convertable term life insurance?

When you compare term life insurance with universal life or whole life insurance, you’ll quickly discover that term life insurance is the most affordable of the three. Not just a little bit, but significantly more affordable.

But then, you’ll hear the argument that term life insurance is temporary and similar to renting life insurance when the other types will last for a lifetime.

Knowing this, wouldn’t be great to have the best of both worlds? Low-cost term life insurance that will last for a lifetime? Well, you can so keep reading.

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What is Convertible Term Life Insurance?

If a life insurance policy is convertible, then the policy can easily be transformed into permanent insurance. As an insurance option within your policy, having the conversion privilege in place allows you to convert your traditional term life insurance policy into a permanent life insurance alternative during the coverage.

Moreover, you won’t have to produce evidence of your insurability which would mean that your original health rate classification assigned to you will be applied – the one the underwriter issued to you when you initially took out the policy with the insurer.

As long as you convert all or a part of the insurance policy’s death benefit prior to the expiration date the policy will become a permanent life insurance policy; it is also essential to mention that most life insurance companies will have age limitations.

For instance, even though there are insurers that split from the mold, the ordinary insurance company tends to mandate that the policy’s conversion option be exercised at some point around 65 to 75 years of age.

Even if you all of a sudden have a serious condition since you owned the policy, if life insurance is convertible, the insurance policy can be converted to permanent coverage,  with no health questions asked.

The insurer will convert all or part of your face amount (death benefit) into permanent insurance, usually into one of the insurer’s universal life policies or whole life insurance. The insurer will convert the insurance policy using your initial health classification, with a modification in premium using your current age and the specific type of insurance policy you are converting to.

An Example of Convertible Term Life Insurance

As an illustration, let’s use Roberta who was 30 years old when she purchased a 20-year term life policy. She initially qualified for the preferred best rate classification. She added a conversion rider so she received the privilege ready and waiting to trigger at any point in time prior to turning 50.

Regrettably, at age 38 she has recently been diagnosed with Type 1 diabetes by her family doctor. Fortunately, the conversion enables Samantha to convert her term life insurance into a permanent policy at the very same rate a healthy 38-year-old woman would get. 

If Roberta were to allow the term life policy to expire and then attempt to buy a new one, she would pay dramatically more money and quite possibly be declined because the insurer would take her current medical issue into account when assigning the new rate.


What will my Term Insurance Policy Convert To?

Frequently, this is an issue we overlook but it is very significant because it will determine the policy you will have until dying. In essence, the insurance coverage will have to stay exactly the same,s o if you had a $300,000 term policy, it will become a $300,000 permanent insurance policy.

If you wished to increase the level of insurance coverage you get, your insurability will have to be verified, which requires a medical exam or health questions at the very least. On the other hand, you may want to reduce your insurance coverage if you’ve paid off your mortgage, lowered your debts, or if your kids have grown up and relocated away from home. If this is the situation, you can decide to convert only a part of your death benefit, and perhaps keep the excess term life insurance or let it cancel.

What Type of Life Insurance You can Convert To

In terms of the specific kinds of life insurance, this option will entirely depend on the life insurance company you have purchased your term policy from and the agreement established at the very start of the insurance contract.

If you are looking for life insurance at present, make certain you understand precisely what you are being provided with a convertible insurance policy. If you are unable to find the information, merely ask the insurance company and they will tell you what type of life insurance will be available to you at a later date.

For instance, one option would be whole life insurance but this will be a little more expensive than other types of policies. Understandably, since it is cash value insurance, it could possibly offer a substantial benefit for your retirement or wealth-building strategies. 

On the other hand, some policies will convert into a universal life insurance policy. As well as being more affordable, the cash value here is only really used to keep the premiums at a steady rate so there isn’t the same cash value accumulation mindset with this type of policy.

Who Should Buy Convertable Term Life Insurance?

First of all, it would certainly be ideal if you are younger and do not have the money just yet for permanent insurance.  For a while or until your financial position improves, you could pay reduced premiums until then making the conversion at the right time.

If you’ve been concerned about the cost of permanent life insurance, this is an ideal method to get low-cost term life insurance now and still have the peace of mind that you have a backup plan if things don’t go as you planned.

Moreover, it is also a very good strategy for those individuals who are uncertain about what their finances might be in a few years. As an example, you may not realize whether your financial debt will even exist, whether you’ve paid for your home yet, or whether or not you have children. Rather than buying permanent insurance ease into the market with a term life plan.

Therefore, you have versatility no matter what develops in the future. If you continue to have debts, you can convert the policy into a permanent plan; if your debts have decreased considerably, you can always convert the policy but decrease the amount of coverage and enjoy more cost-effective premiums; if you have paid off everything and have money saved for your final expenses, you might choose to just let the policy cancel. With this kind of flexibility, you can make the most appropriate decision for yourself no matter how many years in the future it might be.


Frequently Asked Questions

Is convertible term life insurance more expensive?

In today’s life insurance marketplace, most insurers include the term conversion privilege with every term policy they offer. However, if you have to get the conversion option using an optional rider, the additional premium is generally very low/

When I convert my term insurance, will I have to have a medical exam?

One of the most important features of the conversion option is that you will get the same health classification you were assigned on the original policy. No medical underwriting is required.

Do I have to convert all of the death benefit to a new policy?

Depending on the company you purchased your term policy from, you can convert all or a portion of your death benefit to a permanent policy.

What is the primary benefit of converting my term insurance?

The most important benefit is that you can convert from term insurance to permanent insurance without having to go through medical underwriting again. For example, if your term policy was rated as a preferred health class, your permanent policy will be assigned the same health class, even though you’ll be older and have developed health issues.

The Bottom Line

Having the ability to convert low-cost term insurance before your policy expires makes great financial sense because most people don’t need as much life insurance later in life but need insurance for the rest of their life.

The conversion option is a great strategy for converting temporary insurance to permanent life insurance without the need to go through medical underwriting.

For more information contact the insurance professionals at EveryLifeMatters360 at (631) 391-2993 or contact us through our website 24/7.