Term Life Insurance Conversions
A term life insurance conversion is most likely to be the easiest transaction you will ever do with an insurance carrier. There are some guarantees in place that make this so. Let's go into the details of what a conversion is, how it works and how it can benefit you.
What is a term life insurance conversion?
Almost all policies in this country have a clause allowing you to change your term policy into a permanent policy with no evidence of insurability. The "no evidence of insurability" is an important part of this option. It means, if you are within the conversion period for your policy it does not matter what your health is like today! So if your health has changed for the worse, this is a fantastic option for you.
Every carrier has different conversion periods. Some of them will allow you to convert during the entire level term period. Some of them have age limitations. Carriers usually have time limits and age limits and the earlier date is the one that ends the term period. Most carriers allow conversion up to age 65. Some up to 75. Some only up to age 60. Even if you are over the maximum age there is often a short period allowed for conversion.
Some carriers will allow you to convert shortly after your policy is issued. Some will not allow conversion in the first year. As you can see there are so many differences from one carrier to another.
What policies can I convert into?
There are two types of permanent policies. They are whole life and universal life. Some carriers will offer you choices in both categories and some in only one. Some will give you one policy that you can use for conversion while other carriers let you convert into any permanent policy they offer. This last is obviously the best choice, so it's wise to consider conversion options when you are buying a policy.
Let's discuss the differences between these two types of policies.
Whole Life Insurance policies often are more expensive than universal policies. Standard (or Traditional) policies accrue cash value in the policy up to the face amount of the coverage. What this means is that if you have a $100,000 policy, it will have a cash value of $100,000 usually at age 100. The down side is that when you pass away, your beneficiary only gets the face amount of the policy and does not usually get the cash value. To have the cash value go to your beneficiary would increase your premium even more. One benefit of a whole life policy is that you can borrow cash from the policy, but that can also affect your premium and cause it to increase as you age.
Universal Life Insurance Policies are very flexible. There are many ways to structure these policies, giving you more options. There are also different types of universal life insurance. Here's a short summary of the different types.
Guaranteed Premium Universal Life (GPUL) policies allow us to set your premium and face amount so that they will not change during the lifetime of the policy. They can be structured so that no cash accumulates in the policy. This will usually be the least expensive type of permanent policy.
Although there are other types of universal life insurance policies, if a GPUL is available for conversion, it is often our first choice. (However, when we have choices, we must always consider your needs and goals for coverage before deciding on a policy.
How does conversion work?
Once you decide that life insurance conversion is right for you, it's time to have a discussion with your agent. Your agent will find out what the conversion products are and you two will decide which policy makes the most sense for you.
Then your agent will provide an illustration to you that will explain how the policy works. The paperwork required to complete the conversion is a one or two page form, the illustration and the first payment. As long as complete paperwork goes to the carrier during your conversion period your new policy should be approved within a few days. It can't get much easier than that!
Why would anyone want to convert?
There are many reasons you might want to convert your term insurance to permanent insurance. Here are some of them:
- Your health has changed and you are uninsurable.
- Your health has changed and you will be highly rated (more expensive rating than your current policy).
- You want a permanent policy and don't want to go through underwriting and blood tests, etc.
- Your situation has changed and you need permanent coverage and you want it fast.
Whatever your reason, this is an easily accomplished transaction.
The Bottom Line
Term life insurance conversions are a valuable free benefit available with most term life insurance policies. They are easy to complete and you will have lifetime coverage to keep your family secure.