The convertible term life coverage

Term life insurance can only go so far. It provides the coverage you need at rates you can afford. Since term life insurance is only for a certain number of years. After the term has expired, you have the option to renew the cover.

However, the drawback is that over time, as your age increases and your health condition changes (and not for the better), the premiums become more expensive.

With this kind of premium increases, the premiums may eventually be too high. Once you see that you can outlive the coverage period of the term life insurance, you may think about getting coverage that will last longer, maybe for your entire lifetime.

However, terminating the policy and starting over with a permanent life insurance cover such as whole life insurance may not be as easy. Even when you can afford the premiums, your health condition may prevent you from getting the cover that you need.

The solution? Convertible life insurance.

This type of term life insurance allows you to change your term policy into a permanent insurance policy. You can opt to convert the policy into a whole life policy, a universal life policy or a variable life policy without needing to show proof of insurability such as undergoing a medical exam.

A convertible term life insurance is ideally bought at a young age, when term life insurance is the only policy that you can afford but you want to be able to convert into to a policy with more coverage (and higher premiums) at a time when you can afford it. The term life insurance provides affordable cover at your young age. And, the converted policy is an upgrade that covers your long-term needs.

Advantages of Convertible Term Life Insurance

Here are the advantages of a convertible term life insurance policy:

• Affordable coverage at a young age. This allows you to afford insurance cover at a young age, when income may not be enough to afford a permanent policy.

• Permanent coverage later in life. This allows you to upgrade to a more stable (yet expensive) cover such as a whole life policy at a later age without needing to go through a medical exam.

• Guaranteed insurability. Basically, the premium ratings that are used when your policy is issued will also be used for the converted policy. This also ensure that you will have cover even when your health has made a turn for the worse and when you may actually be considered uninsurable. For instance, if you have suffered a stroke or got involved in an accident that rendered you totally and permanently disabled, you will no longer be able to get a new life insurance policy.

• Cost effectiveness. The ability to convert the policy into a permanent one without having to change the premium ratings may provide you with significant savings as compared to getting a new permanent policy at the same age that you are converting.

This kind of policy is ideal if you are into exploring the insurance products that are available for you. However, you should also note that the there is a time limit for conversion – you need to convert before the policy expires. Also, your choice of policy to convert is limited on the products that are offered by the insurance company – you may only choose the products that the company is currently selling. Of course, the premiums will also be more expensive, as you are not availing of a permanent policy.

Other facts about policy conversions (from term life to permanent life insurance):

• The conversion option is available at an additional cost. You can include this option at the time the policy is bought.
• The conversion option is usually available for plans that expire before you turn 65 years old.
• The amount of insurance that is converted can be lower than or equal to the existing amount of insurance. There are also cases where increases in the Retail Price index are considered when deciding the amount of insurance.
• The conversion option may not be available with plans that include critical illness cover. If the conversion will not include the critical illness cover.
• The conversion option may only be exercised once.
• The conversion option can be partial, meaning part of the cover amount can remain as term life insurance while the rest is converted.

Updated on: 04.06.2013

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