As we grow through our lives, it’s typical to accumulate considerable debt while purchasing homes, vehicles, investing in retirement, opening a business, or starting a family. In our younger years, when plenty of coverage is necessary, the most affordable type of life insurance to cover these debts is term insurance, and the most important rider is the term conversion privilege.
Although term insurance isn’t considered permanent, many people understand it is the most inexpensive way to purchase the amount of insurance required to cover a mound of debt, replace your income, and pay for college tuition. We do, however, reach a point in our adult lives when permanent life insurance makes more sense, but the worst thing you might do is cancel your term insurance and then look for permanent insurance like Whole Life or Universal Life. This could very easily cause a lapse in coverage and result in a huge mistake.
Term insurance rates, like other types of life insurance, are based on various factors that will be used to determine your periodic premium:
- Your age
- Your health history and your family’s health history
- Your driving record
- Your occupation
- Your record of prescription drugs
- Your record of dangerous hobbies like mountain climbing and scuba diving
- Travel to dangerous or hazardous countries
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For younger adults, term insurance is inexpensive with rates that be guaranteed for up to thirty years. When your policy expires, most insurers will offer an annually renewable policy based on your age at renewal and each renewal after that. If you remain healthy when your policy expires, you might be able to buy another inexpensive term policy with a 10 or 20-year term rather than accepting the annually renewable offer from your insurer.
But if you are like most adults and have focused on your occupation instead of your health, you’ve likely developed some health issues and would be better served by converting your term insurance to permanent insurance that you cannot outlive.
Also, since it’s likely that your debt has been significantly reduced and your kids have entered college, the amount of life insurance you need will also be reduced. This is when the conversion rider is especially important to the policyholder.
The Term Life Insurance Conversion Rider
The conversion rider is probably the most valuable feature of your term insurance policy. You can elect to convert all or a portion of the policy although insurers set time limits for conversion. This rider allows the insured to convert either a portion or all of your term insurance to permanent insurance without having to prove you are in good health and will reduce the sticker shock for the attained age rating that is for the new policy.
For example, the insured is able to convert a portion of the face amount of the term coverage at one point, and then the balance at a later point in when it makes more sense.
How the Conversion Works
First, it’s important to recognize that a term conversion is only available when the insurer you have bought term insurance from also offers permanent insurance products like whole life or universal life. Some insurers have permanent products designed specifically for term conversions. When the time comes to exercise the conversion privilege, your broker will rate the policy based on your current age and type of policy you are converting to.
The Conversion Process
Typically, you would use the insurance agent you bought your insurance policy from to handle the conversion, or you can use a different agent so long as they represent the same insurer. If you’d like LifeQuotesASAP to take care of the conversion procedure, there are several steps that must take place:
- Current Policy Information: Step one in your conversion process is for you to sign a form giving your insurer permission to send us the info regarding your current policy.
- New Policy Illustration: Once we have received and reviewed your current policy information, we’ll determine which insurance products are available for us to use in the conversion process. Once we agree on the best product for your situation and budget, we’ll provide you with a printed illustration that describes the cost and benefits specific to the new policy.
- Your Application: Since the new application doesn’t require you to answer multiple questions about your health history, the application will be shorter and much easier to complete.
- Application Approval: Since there is no medical underwriting to deal with, once the insurer receives your signed application, your policy will usually be issued within seven to ten days.
Insisting on a conversion rider is an excellent idea, but only if you are buying from a company that has permanent insurance products when you need them. Be careful though, even if the company charges an extra premium for the term rider, they do not have to guarantee a product will be available when you want it. It is always best to purchase your Term insurance from a company that has been offering various permanent products over the years and has depended on them being a part of their portfolio.
It’s not a secret that life insurance purchases are typically driven by life events that are not generally foreseen, and because of this, it makes a lot of sense to buy as much life insurance that you can comfortably afford while you’re young and have access to affordable rates. If you insist on a policy with a term conversion privilege, you can always convert to permanent insurance later in life without worrying about whether you are healthy enough to get the best rates available.
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