What Is Convertible Term Life Insurance?

Convertible term is a form of permanent life insurance that allows a person to exchange it for term life insurance without undergoing a thorough life insurance underwriting process. 

Learn more about convertible term life insurance, including its details and how you can find if it may be an excellent life insurance option for you.

Definition and Examples of Convertible Term Life Insurance

Life insurance coverage depends on whether you're shopping for term policies or permanent policies. Term policies function as insurance only for as long as your policy is in effect. Permanent policies, on the other hand, function as insurance for life of the insured unless they are canceled.

Some variations of term life insurance are able to be converted to permanent life insurance without needing a medical exam or health check.

The major advantage of convertible term life insurance is that you can purchase a temporary policy, which costs less than permanent life insurance but leaves the option open to convert to a permanent policy in the future. You don't have to go through a health examination or underwriting process during the application process. Your premium for the permanent policy will be calculated based on the information you provided when you applied for the term policy and your current age.

Convertible term coverage may be suitable for young children who wish to have a great deal of coverage, but who don`t rather possess a good income amount to back it. Keep in mind that premium rates will climb up if the policy is converted into a permanent one.

For example, let's say that you have young children and want life insurance, but the payments are too expensive for a permanent policy. So you buy a 20-year term form. Four years from now, you earn more money, so you can afford permanent life insurance, so you convert your term policy to a permanent one.

How Convertible Term Life Insurance Works

Once a convertible term policy is implemented, you may have the option to renew, convert to permanent life insurance, or drop the coverage. Moreover, you do not have to wait for the policy to be approached to convert it, and in some situations, you ought to not.

If you choose to convert their policy, you are obliged to do it during the conversion period, whose length varies depending on the type of term policy you have. You can also convert a portion of the policy to permanent coverage; you may make this multiple time or just once, check your policy files for more details.

You won t have to undergo a full-fledged physical exam if you convert to permanent life within this period and you are approved for coverage. The premium rate for your new life policy will be based on your current age and your health when you applied for the term policy, (not on your current health) instead of your age on the conversion date.

It's sometimes possible to make this adjustment without undergoing a medical exam, but you still need to expect higher premiums in exchange for this switch. The higher premiums you pay for permanent life insurance (compared to term coverage) reflect the additional costs of building up cash value and the extended length of coverage.

Do I Need Convertible Term Life Insurance?

The reasons behind having health insurance may change depending on the circumstances. Term life insurance permits you to start with an affordable policy, while allowing you to convert to permanent insurance without a medical exam when your situation changes and your finances and life insurance needs change. 

Convertible term insurance may be necessary in rare occasions.

You Want Permanent Coverage But Can’t Afford It

In the future, if you can only afford a month-to-month insurance policy, purchasing a term plan with a conversion option permits you to lock in a cost based on the present state of your health. As your financial situation improvements, you may decide to convert some of the term coverage to permanent.

You Have Outstanding Debt

Term life coverage safeguards your dependents from financial hardships should you pass away while your policy remains in progress, and term policy enables you to add more money toward paying down your debts (greater than having a more expensive permanent policy). If you have convertible term life insurance, you can go through your whole life with it to earn a permanent insurance policy. Your loved ones will still be protected regardless of when you die.

You Have Dependents

If you have dependants, you obviously require life insurance. But having dependents can be a pricey proposition and a term policy could be all you can afford right now. Rather than waiting until your financial stability improves, a term policy can provide the coverage you require now for a price you can handle.

If you need a long-term policy for a lifelong dependent say a special needs child, then a permanent policy is your best bet. But if you can't afford it or cannot pay enough with a permanent policy, then convertible term coverage may be your second best bet. In this way, you can get the life insurance you need at an affordable price, and it can be converted to permanent coverage when you have the financial means to do so.

Key Takeaways

• A convertible term policy allows you to convert your term policy to a permanent life insurance policy. 
• You won't be required to take a medical examination or answer health-related questions if you choose to convert term life insurance (with a conversion clause) to permanent coverage.
• If you want to change over to permanent life insurance, you must complete the conversion within the policy conversion period. 
• Converting from term to permanent life insurance will raise your premium costs.