Is Your Life Term Insurance Convertible?

If you're wondering whether your life term insurance is convertible, you should start by reading the policy documents. These will outline the specific rules and conditions of your policy, including any conversion options. If you're unsure, you can always contact your life insurance company for clarification. Generally, convertible term life insurance allows you to switch from a term policy to a permanent life policy, such as whole life insurance, without undergoing a new medical exam or the underwriting process. This gives you the flexibility to adjust your coverage as your life circumstances change.

Convertible term life insurance lets you exchange your term policy for a permanent life policy

Convertible term life insurance is a type of temporary term life insurance that can be turned into permanent life insurance. This means that you can switch coverage at a future date without undergoing a new health screening process.

Convertible life insurance gives you the option to buy low-cost temporary coverage now while keeping your options open to buy lifelong coverage later. This can be a good idea if you can only afford a less expensive term policy today but think you might like permanent insurance later. You can protect your loved ones with insurance immediately while keeping the option to switch to permanent coverage when you can afford it.

However, if you want permanent coverage and can afford it right away, it might be better to get that set up as soon as possible. The premiums will be lower when you buy at a younger age versus converting at an older age later. You also build up more cash value by buying permanent coverage earlier.

Convertible term life insurance typically lets you choose when you want to convert from term life to permanent life insurance. You can do this at any time before the conversion period ends. The conversion period usually ends before the term ends or before you turn 70, whichever comes sooner.

When you convert a term life policy to a permanent life policy, insurers won’t require a new medical exam. Being able to switch coverage at a future date without having to undergo a new health screening process can be a huge benefit.

You can convert to any type of permanent policy your life insurance company offers

If you have a convertible term life insurance policy, you can typically choose to convert to any type of permanent policy your life insurance company offers, such as whole life or universal life insurance. This is known as a full conversion option.

With a convertible term life insurance policy, you can enjoy the benefits of a permanent policy, such as lifelong coverage and a cash value component, without having to worry about your policy expiring. It's a good option if you have long-term dependents or several large debts that you don't expect to pay off before your initial term expires.

Some life insurance companies also offer partial conversion options, where part of your term life policy is converted to a permanent life policy, and the rest remains as term life insurance. For example, if you have an $800,000 policy, you may choose to convert $300,000 to whole life insurance, while the remaining $500,000 stays as term life coverage.

It's important to note that premiums for permanent policies are typically higher than those for term policies, so you can expect to pay higher life insurance premiums if you choose to convert. Additionally, the cost of the permanent coverage will be based on your age when you convert.

Before making any decisions, be sure to read the policy documents carefully and consult with a financial professional to understand the specific conversion options and potential costs.

You can choose to do a full or partial conversion

You can choose to convert your term life insurance policy partially or fully. If you opt for a full conversion, the amount of your new coverage will be the same as your term insurance. For instance, if your term life insurance policy has a $250,000 death benefit, your new permanent life insurance contract will also be $250,000.

On the other hand, a partial conversion means converting just a part of your existing life insurance. This leaves you with stacked coverage, with both a term policy and a permanent policy active at the same time. This is usually a more affordable option in the long term than having permanent life insurance alone, as you still have some term coverage. For example, if your term life insurance policy has a $250,000 death benefit, you could convert $150,000 to a permanent policy and keep the remaining $100,000 as term coverage. The premium on the remaining term policy will also be lower since the face amount has decreased.

Most people don't need extensive permanent policies unless they have a high net worth and will owe a large estate tax bill. Therefore, partial term conversions are more common than full conversions.

You can convert without a new medical exam

You can obtain life insurance without undergoing a medical exam. This is known as "no-med" life insurance, and it is becoming more common with the emergence of "insurtech" startups. While some companies may ask you questions about your family's medical history, prescription history, driving record, criminal record, and drug and alcohol consumption, others skip these steps entirely and instead charge higher rates or limit coverage options.

No-med life insurance is a good option if:

• You have pre-existing medical conditions that may make it difficult to get coverage.
• You dislike needles or doctors.
• You need coverage as soon as possible.

There are several types of life insurance that don't require medical exams:

• Simplified issue life insurance: This type offers a faster application process by not requiring a medical exam. However, coverage is usually limited to $500,000 or less, and the policies tend to be more expensive.
• Instant issue life insurance: Also known as accelerated underwriting or instant approval, this type provides a decision on your application within minutes. While the application process is fast and convenient, approval isn't guaranteed, and the coverage amounts tend to be lower.
• Guaranteed issue life insurance: With this type, you are guaranteed to be accepted, but the coverage amounts are typically less than $25,000. It is often marketed as "final expense" insurance to cover funeral and burial costs.
• Group life insurance: Some employers provide group life insurance for free or at a low cost, and it does not require a medical exam to enrol. The coverage amount is usually one to two times your annual salary.

If you are considering "no-med" life insurance, it is important to understand the trade-offs involved. These policies may be more expensive and offer limited coverage amounts. Additionally, you still need to be transparent about your medical condition and history on your application, as failing to do so constitutes insurance fraud.

Convertible term life insurance offers the chance to extend your coverage for the rest of your life

Convertible term life insurance is a type of policy that allows you to extend your coverage for the rest of your life. It offers a range of benefits and provides flexibility to adjust your insurance according to changing needs.

Benefits of Convertible Term Life Insurance

Convertible term life insurance offers several advantages:

• Lifelong coverage: By converting your term policy to a permanent one, you can ensure that your loved ones are financially protected for the rest of your life, rather than just for a set period.
• No new medical exam: One of the most significant benefits is the ability to switch to a permanent policy without undergoing a new health screening or medical exam. This means that any changes to your health since taking out the original policy won't affect your ability to get a permanent policy.
• Fixed premiums: The premiums for your convertible term life insurance remain the same during the term. However, once you convert to a permanent policy, such as whole life insurance, your premiums may increase.
• Flexible conversion options: Depending on your insurer, you usually have the option to convert your term policy to a permanent one before the term ends or before you reach a certain age, typically 65 or 70. Some insurers also offer partial conversion, allowing you to convert only a portion of your term policy to permanent coverage while retaining the rest as term coverage.
• Peace of mind: Convertible term life insurance provides long-term peace of mind. Even if your health declines or your circumstances change, you know that you have the option to extend your coverage and protect your family.

When to Consider Convertible Term Life Insurance

There are several scenarios in which convertible term life insurance may be a suitable option:

• Providing for dependents: If you have aging parents or a child with a disability who you're still caring for, you may need coverage beyond the initial term of your policy.
• Outstanding debt: If you have significant debts, such as a mortgage or car loan, that you don't expect to pay off before your policy's term expires, converting to a permanent policy can ensure that your loved ones won't be burdened by these debts.
• Changing health: As you age, your health may decline, and obtaining new life insurance coverage can become more challenging and expensive. With convertible term life insurance, you don't have to worry about taking a new medical exam to qualify for continued coverage.
• Budget changes: If you originally chose term life insurance because of its lower premiums, your budget may change over time. Convertible term life insurance gives you the flexibility to convert to a permanent policy with higher premiums when you can better afford them.
• Access to cash value: Converting to a permanent policy, such as whole life insurance, gives you access to a cash value component that grows with interest over time. You can borrow against this cash value or use it to pay premiums.

Frequently asked questions