As its name suggests, convertible term life insurance provides the policyholder with the option to convert their policy into permanent coverage. While this could be a valuable benefit, it’s important to fully understand how it all works before making a decision.
What Is Convertible Term Life Insurance?
Convertible term life insurance is a unique type of policy that provides the option to switch to permanent life insurance coverage after a set period.
Typically, a policyholder can convert their plan at any point between the policy’s issuance and maturity. Convertible term life insurance usually comes with a higher premium, but the advantage is in the flexibility it offers. The policyholder is not “locked in” to a policy that no longer meets their needs and can easily change the policy's coverage to meet their current requirements.
How Does Convertible Term Life Insurance Work?
When you purchase a convertible term life insurance policy, you choose the duration of the policy, which is the term. Typical term lengths are usually 10, 15, 20, or 30 years. You also choose your insurance coverage and pay a premium for the selected term. During the term of the policy, you can convert to a permanent life insurance policy without evidence of insurability. This means that you have the option to convert to permanent coverage at any stage until your policy expires. The premium for permanent coverage is higher than term insurance, but your premium will be based on a lower initial age than if you were to purchase permanent coverage upfront.
Benefits of Convertible Term Life Insurance
The primary benefit of convertible term life insurance is that you can lock your insurability, ensuring coverage even if your health deteriorates later on. This is particularly important if you have developed a medical condition that may affect your ability to purchase life insurance coverage in the future. With convertible term life insurance, you can convert your policy to permanent coverage regardless of any changes to your health condition.
Another key benefit of convertible term life insurance is the flexibility it provides in managing your finances. A term life insurance policy has a lower premium than a permanent life insurance policy, which means convertible term life insurance premiums are also typically lower than the premiums for permanent coverage. By starting with term life insurance, you can save money on premiums and buy greater coverage while you are younger. When you convert to permanent coverage, you will have lock-in your insurability that will ease your mind, knowing that you have permanent life insurance.
Things to Consider Before Switching to Convertible Term Life Insurance
When considering switching to convertible term life insurance, there are a few things you should keep in mind.
First, it is essential to understand the cost of the conversion itself. While conversion usually doesn't require evidence of insurability, the new permanent policy’s rate will be based on your current age, the policy's new amount, and other factors that influence rates.
Second, you should always assess whether permanent life insurance is needed before making a switch—it may not be necessary for your life stage.
Finally, you should consider the financial strength and ratings of the company offering the convertible term life policies to ensure you are not putting your money at risk with a questionable, unknown insurer.
Conclusion
Convertible term life insurance provides a flexible option for individuals in need of life insurance coverage. The ability to convert the policy to permanent life insurance coverage provides peace of mind, and the affordability and flexibility suit many people's needs.
It’s essential to consider the cost of the conversion itself, the need for permanent coverage, and the financial strength and ratings of the insurance provider. If you are considering purchasing life insurance coverage, it is worth considering and exploring a convertible term life insurance policy. It could provide the coverage you need at an affordable price.
For more information about getting a convertible term life insurance policy, contact Insurance Specialists, Inc.