Converting Your Term Life Insurance Policy to Permanent Coverage
Most people overlook the importance of the conversion provision in their term life insurance policy. The conversion provision allows the term policyholder the opportunity to convert their term coverage to permanent coverage without proof of insurability. You might be wondering why you would ever need to convert your term coverage to permanent coverage. The fact is that there are several situations where a conversion would make a lot of sense. Here is what you need to know about conversion provisions and the process of converting your term life insurance policy to permanent coverage.
How Does the Conversion Provision Work?
When you purchase convertible term life insurance, it includes a conversion provision that allows you to convert the policy to permanent coverage with the same company without proof of insurability. In other words, you will not have to take another paramedical exam and your health class rating will stay the same as it was when you applied for your original term coverage. The insurance company will specify in your policy how long the conversion option is available to you and the permanent products to which you can convert. Every insurance company has its own conversion terms so it is important to know what they are before you buy your policy.
What Should You Look for in a Conversion Provision?
Almost all of the term policies on the market today are convertible. That’s the good news. The bad news is that not every conversion provision is created equal. Here’s what you need to consider when evaluating a conversion provision.
Maximum Age – As mentioned previously, there is a time window for conversion that varies depending on the company. In most cases, you have up to the earlier of the expiration of your level premiums or age 70 (some companies go as high as age 75). Be careful because some companies only allow conversion within the first 5 years.
Choice of Permanent Products – Companies differ on the choices they offer for permanent products available for conversion. For Instance, Prudential and John Hancock will allow you to convert your term product to ANY of their permanent products while most other companies limit your choices. This can make a huge difference as the rates for various permanent products within the same company can vary quite a bit. Some companies might only make available their more expensive products for conversion.
Conversion Credits – Some companies offer conversion credits which will allow you to reduce the first year premium on your new permanent policy by a certain amount. For example, an insurance company might credit the last 12 months of premiums that you paid into the term policy that you’re converting toward the first year premium of your new permanent policy.
When Should You Convert Your Term Life Insurance Policy?
Here are some situations where it might make sense to convert your term policy to permanent coverage.
Your Health has Declined Since You Purchased Your Term Policy – Let’s say you were in perfect health and given a ‘preferred best’ rating when you originally purchased your term policy. Over the years though, you developed serious heart disease and needed bypass surgery. You could convert part or all of your term coverage to permanent coverage without proof of insurability. The rates for your new permanent policy will be based on a ‘preferred best’ rating.
Your Needs Have Changed from Temporary to Permanent – In most cases, the need for life insurance diminishes as you get older. You might be content simply letting your term coverage expire. In other cases, you might decide that you want to leave a legacy to your children, grandchildren or spouse or keep enough coverage to cover your final expenses. You can convert all or part of you term policy depending on how much permanent coverage you feel will be needed.
Your Term Policy is About to Expire – When your level premiums expire on your term coverage, you still have the option to keep your coverage up to age 95 but your rates will increase every year. In almost every case, rates will increase so much that they become unaffordable. If your term policy is about to expire and you still need coverage, you will almost always be better off converting your policy to permanent coverage rather than paying the renewal fees on your existing term policy.
External Term Conversions – External term conversions are something that only a handful of companies out there allow. With traditional term conversions, you must convert your term policy to a permanent product within same insurance company. With an external conversion, you can convert your term policy to permanent coverage with another company. This might be a viable option if your current insurance company doesn’t have competitive permanent options. Companies that allow external conversions won’t accept conversions from every company. If you are interested in finding out about your external conversion options, we would be happy to get that information for you.
What is the Process for Converting Your Term Policy?
Converting your term life insurance policy to permanent coverage is a straightforward process. We would be happy to help you with your term conversion. Here is how the process for a term conversion would work. We would verify all your conversion information such as conversion expiration date, underwriting class and permanent product options available. Help you decide which available permanent product option would be best for you. Provide you with an illustration of your new product which would show how the policy might perform over time under different scenarios. You would sign the illustration and a conversion request form and that is it in most cases. Your new policy will be issued and your first premium will be due.
Conclusion
If you need to convert your term policy we can help. In many cases, people who want to convert their policy haven’t seen or heard from their agent since they purchased their policy and don’t know where to start. If that is the case, we would be glad to help you. We can help you request the information you need to determine your conversion options and guide you through the conversion process. If you are interested in converting your term coverage, give us a call at 888-687-9444 or email us info@archstoneagecy.com.
About Us
Archstone Insurance Services, LLC is an independent agency that shops over 40 of the top life insurance carriers to provide huge savings on life insurance coverage for our clients. We are happy to answer any questions you might have about any of the insurance products we offer, your planning needs or your existing coverage. Feel free to call us directly at (888) 687-9444 or email us at info@archstoneagency.com.
