Convertible Term Life Insurance Explained

An important limitation of term life insurance is that it expires after a certain period. Hannah decided to purchase a Convertible Term Life Insurance policy for that reason. Instead of going without life insurance, she can convert her term life insurance to a permanent policy. 

Stay around to learn more about conversion-term life insurance. Let’s talk about how it works. With convertible term life insurance, the policyholder can change their term policy to a whole or universal policy without undergoing health exams again. As long as the policyholder continues to pay the insurance premium, convertible insurance covers a policyholder’s beneficiaries indefinitely. 

The value of the permanent policy will be the same as that of the term policy if the policyholder decides to convert. It will, however, be more expensive. There’s a built-in cost for the option of converting a term life insurance policy without a medical exam. This makes convertible insurance more expensive than term insurance in the first place. 

When converting from a term to a permanent policy, no medical underwriting is required. That’s a good thing. They can obtain a permanent policy if their health has declined since they started the convertible term policy. When you can only afford a less expensive term policy now, you might choose a convertible policy. Maybe later you can afford a more expensive permanent policy. You won’t have to worry about losing coverage due to health changes. 

Convertible insurance policies are also beneficial for other reasons. Your dependents will be financially taken care of, should you die, if you convert from term to whole insurance. Dividends increase the cash value of whole-life policies as well. A cash value component is a useful tax-deferred savings vehicle. It takes time, however, to build up savings. But convertible term insurance is not perfect. 

You are not guaranteed to receive a permanent policy for the same price as a term policy when you choose convertible insurance. The risk associated with permanent insurance makes it more costly than term insurance. During the conversion process, they use the policyholder’s current age. 

Some insurance companies require a lump-sum payment for those who want to use their original age in the conversion. There is a conversion deadline for term life insurance. Once the deadline has passed, policyholders cannot convert their policies. Always keep an eye on the deadline. Still, the conversion guarantee is a feature worth paying for.