If the policyholder opts to convert their convertible insurance policy, the permanent policy will carry the same value as the term policy; however, it will be more expensive. Even before conversion, convertible insurance can cost more than an insurance policy for life that is a term with the same coverage because there is an added cost to be in a position to convert without having a medical examination.
The advantage of convertible insurance is that the person who purchased it does not have to undergo the process of medical underwriting again to convert between term and permanent insurance. This is an excellent benefit. Suppose the policyholder's health has deteriorated since they began the term insurance policy convertible. It will allow them to secure a permanent policy that they would otherwise not be eligible for. Convertible insurance means that the person only needs to pay insurance premiums on time to keep the option of changing the term policy to permanent.
Working
If the period in a convertible insurance policy is over, you'll have the option of renewing the policy, changing it to permanent, or simply dropping the policy. You don't have to wait for your term policy to run out to convert, or, in certain instances, it's not necessary. If you'd like the policy to be converted, it is obliged to do so during the conversion period, which length is determined by the type of policy you've purchased. You may also opt to convert a specific portion of the policy into permanent coverage. You might be able to convert multiple times or only one time.
You will not be required to undergo an exam for medical conditions when you switch to a permanent life in the timeframe and will be accepted for insurance. The price of your new life insurance policy is determined by your age on the date of the conversion and your health of your when you made an application for the term insurance (not dependent on your health status at the time of application). Although you can make the change without undergoing an exam for medical reasons, you can still expect more expensive premiums. The higher rates you pay for life insurance with a permanent term (relative to short-term coverage) reflect the higher cost of accumulating cash value and the longer duration of insurance coverage.
Costs
Certain term life insurance policies offer the option of converting without cost. Other policies might charge for this option. If you decide to convert your insurance coverage in the near future, your premiums will rise. The new rates will be based on the current permanent market rates for life insurance which can be between six and 15 times those for term life insurance. However, conversion can cost less than applying for an additional permanent insurance policy after your term is over, particularly when your health is not good. Certain life insurance companies provide credit for the conversion to a term, which could temporarily reduce your price.
Converting a partial policy is another option to lower costs. This is a method of splitting the death benefit between your current policy and the new permanent policy. Imagine, for instance, that you decide to convert only half of your $500,000 term policy. In this scenario, you would convert $250,000 into permanent life insurance, and the remainder of $250,000 would remain on the current term life insurance policy until it runs out. This could make your premiums lower than the premiums for a $500,000 permanent life insurance policy.
Options for Convertible Life Insurance
Convertible life insurance could offer the possibility only of converting a part of the deceased's benefit. Imagine you're completed with your home mortgage within 10 years. You could leave a portion of the policy unclaimed as the term runs beyond this point, but you could transform a portion of the death benefit to prolong your life span. If you choose not to renew your term policy when the financial burdens are reduced after the mortgage is fully paid, your beneficiaries still have something left.
Advantages
It's possible to purchase the convertible term insurance option when you're able only to manage a lower-cost term policy at the moment; however; you think that you could prefer and afford an expensive permanent policy in the future and don't want to run the risk that changes in your health can make you unfit for the life insurance policy. There are additional reasons to get an insurance policy convertible. For instance, you may prefer to convert from whole to term to make sure your family members will be taken care of financially in the event of your death. All life policies include an element of the cash value that increases through dividends. While it can take some time to build savings, the cash value component can be a great way to create tax-free savings.
