Nearly all term life insurance policies issued today include a provision that allows the policy owner to convert the policy to a permanent type policy (e.g. universal life, whole life, variable life, etc.). While the rules vary by insurance company, the basics are fairly universal.
- The coverage amount of the new permanent life policy cannot exceed the coverage amount of the term life policy.
- The new permanent life policy is usually issued at the insured’s current age at the time of conversion.
- The insured does not typically have to provide evidence of insurability for conversion.
- Most term life policies allow the conversion to occur at any time during the initial level term period (e.g. 10 years, 20 years, etc.), up to a maximum age of around 65-75, depending on the insurance company.
Who This Works For
Aside from the self-acclaimed prognosticators, no one can truly be sure of what the future holds in term of our health, finances, etc. Conversion can be a useful benefit for people in poor and deteriorating health that find themselves in need of life insurance coverage beyond the initial level term period. For example, let’s say you are 18 years into a 20-year term policy when you are diagnosed with a serious, life-threatening illness. It’s an illness that precludes you from getting a new life insurance policy. Conversion may be a good option as you will not have to show evidence of good health like you would have to when applying for a new policy. Of course, the premiums may be higher for the permanent policy. You will have to weigh the pros and cons.
What to Watch For
You should make sure the insurance company allows the conversion to take place at any time during the initial level term period, like Genworth Life Insurance Company’s Sure Term series. Some companies limit the conversion period to ten years, regardless of the initial level term period. This is important if you believe you may have a need to convert the policy toward the end of the term.
Another important feature is the ability to convert the term policy to a variety of different permanent products. This can be difficult to ascertain upfront, however, because many companies allow conversion to ‘any life insurance policy we make available for this purpose.’ A bit vague to be sure. Just try to avoid companies that limit you to only one or two choices. Who knows what type of permanent life insurance policy will be in favor in 20 years when you need to ‘get your perm on.’