Convertible Term in Term Insurance

If you purchase a convertible policy, you are allowed to convert to a different type of policy — one that builds a cash value, such as whole life or universal life, without having to pass another medical exam. Again, because your health is more likely to deteriorate as you age, this feature may be important if you think that you may want to keep buying life insurance later in life. Most people don’t continue to insure themselves after they reach retirement age, usually because they no longer have anyone dependent upon them, but there are exceptions. For example, take a look at a family of four in which the father is 56, the mother is 43, and the two children are both under 10. The younger child won’t start college for another 15 years, and the parents want to make sure the children have sufficient money even if the father dies. These parents may want to keep insuring the father after he reaches the age of 70, the age at which his policy specifies that he can no longer renew his term insurance policy. To them, therefore, convertibility is an important option.

Another reason you may want to be able to convert your term insurance is if your family has a history of heart disease, cancer, or other serious illness. If your family history makes you more likely to become sick later in life, you may want to ensure that you don’t have to pass a medical exam later, even after term insurance is not available. Because buying life insurance is, basically, eliminating as much risk as possible, many people think that this provision is an important one. A third reason to keep the convertible option has to do with the price of term policies versus cash-value policies. Term policies generally cost considerably less than other types of life insurance because the others also build value while paying for the insurance. Convertibility may be important to you if you’re on a limited budget but want a cash-value policy.

You know that you can convert later, when you have greater financial strength

Keeping the option to convert means that your policy will likely cost you more.
Consider the following questions regarding convertibility:

• To what can you convert your policy? Whole life? Universal life? Either one? Any product the company offers later on?
• When can you convert? Some policies specify how many years you have to convert. Obviously, more time to decide gives you more options when you need them. Of course, the additional flexibility likely means a higher premium throughout the life of the term policy.
• When you do decide to convert, will the new premium be based on your age when you convert? Or will the company require you to make a lump sum payment to “catch up,” as though you had purchased the cash value policy to begin with?