Most life insurance companies offer renewability and conversion privileges in their term life insurance policies. The renewability provision allows policyholders to renew a term policy at the end of the term period and annually thereafter. Most of our clients find the premiums at renewal to be cost-prohibitive and either purchase a new term policy, if in good health, or they convert their current policy to a permanent one if lifetime coverage is required (or if health issues make purchasing a new policy difficult).
Aside from locking in premiums for the rest of one’s life, one of the main benefits of term life conversion is that you convert at the health class at which you were originally rated. Therefore, if your health has declined since you first purchased your term life insurance policy, it won’t be a factor in the new policy.
Most term conversions are attained age conversions. In an attained age conversion, the policy owner simply exchanges his/her existing term life policy for a permanent one (whole life or universal life, depending on the company) at his/her age at the time of the conversion. For example, a 45 year old purchased a 20 year term policy when he was 30. He now wants to convert his term policy to a permanent one. The premiums for his term life insurance policy were based on his age when he purchased his policy (30). However, the premiums for the permanent policy he is converting to will be based on his age at conversion (45).
If you currently have a term life insurance policy and think that your life insurance needs will extend through your whole life, you might want to look at converting your policy, especially if your health has changed (for the worse) since you purchased your term policy. If you’re thinking about doing this, have your agent get a conversion illustration from your insurance company.
Understanding the Benefits of Converting
- Permanent life insurance policies offer premiums that remain the same throughout your lifetime (as opposed to term insurance, which increases at the end of each term).
- A permanent life insurance policy may also build cash value, which may be withdrawn or borrowed against during your lifetime.
- By converting a term policy to a permanent policy, you can lock in your health class for the rest of your life while you are healthy.
- The conversion policy will be underwritten at your age at the time of conversion, so the earlier you convert, the less expensive the premiums will be.
While I don’t believe conversion is an option for all term policy owners, it is definitely something many should be reviewing with their life insurance advisor from time to time.