Term life insurance is a valuable financial tool for young families. The coverage guarantees a fixed benefit if the policyholder dies within a specific period of time. This protection can make all the difference if the family wage earner dies at an early age and the stay-at-home spouse has to continue to care for their surviving family. It is a cost-effective means for wage earners to ensure their family gets the protection they need even after they are gone.
However, if the insured outlives the term, the policy expires and the insurance company keeps the premiums. In most cases, the policy owner does outlive the term. That’s why this coverage cost is more affordable than permanent insurance. The insurance company assumes there is very little risk that they will have to pay the stated death benefit.
Term Insurance being low cost is what appeals most for young families. They usually have other significant debts like mortgages and student loans, so there isn’t a lot of money available to pay insurance premiums. Term life insurance provides an affordable coverage option. When these families purchase insurance, the conversion clause is not much of a concern to them. It is the ability to convert the term insurance to permanent insurance for additional premiums, but without having to undergo a medical examination. This lack of concern is where the problem occurs.
As the family matures and the wage owners grow older, the expiration of the policy gets closer and it should be converted to permanent insurance. If the policyholder isn’t conscious of the situation, the policy could expire and the family would be without insurance coverage. It is especially important if the wage earner has developed a medical condition. By converting within the conversion period, the policyholder can obtain permanent insurance at a much lower rate than if they had to complete a medical examination first.
Some term policies don’t have conversion clauses. Those that do come with higher premiums. The extra cost is money well spent because no one knows what physical shape they will be in 10 or 20 years into the future. It is best to prepare for the eventualities of a medical condition than to be faced with it and have difficulty finding insurance that could provide security to your family.
Some Reasons to Convert Term Life Insurance to Permanent Life Insurance
Most Term Life Insurance offers an option to convert to permanent life insurance at a certain time during your Term Life Insurance contract. However, without a strong foundation on the benefits of converting to Permanent Insurance, many lost their chance to convert. We will discuss here the reasons why you should convert your Term Insurance to Permanent Life Insurance.
1. Cash Value
The cash value of Term Life Insurance is none. If the policyholder outlives his Term, he will get nothing from the insurance company. If the Term Life Insurance gets converted before the end of the Term, you can take advantage of the cash value that you can get from Permanent Life Insurance. This cash value can serve as your emergency savings while you are living. However, these cash savings should be your last resort, as using this will decrease the death benefit of the surviving family in case of death.
2. Financial Capacity
When you are younger, you tend to have lower income and higher expenses. You may be just starting your job while growing a family. Expenses tend to pile up – from Mortgage Payments or Rent expenses, child care, tuition fees, and some other necessary expenses. Sometimes buying Permanent Insurance becomes expensive. This is why most young families start from getting Term Life Insurance which is fairly affordable and provides protection for family in case of early death by the policyholder.
Term Life Insurance surely has great advantages in a given time. However, when you get older, expenses may have been lessened, income higher and insurance needs changes. It is best to convert to Permanent Life Insurance to give your family protection not just for a specific time but for your lifetime. An increase in insurance premiums when you get older outweighs the benefit you can get from Permanent Life Insurance. This will give you peace of mind that even when you pass away, the needs of your family will be taken care of.
3. Health Issues
Having an option to convert your Term Insurance to Permanent Life Insurance is advantageous when your health conditions deteriorate. When you acquire a serious medical illness, it will be difficult to find an insurance that can give you coverage. It would be no insurance company that will accept you, or you will be paying higher premiums. If you convert your Term Insurance to Permanent Life, you do not need to undergo medical examinations. Most insurance companies will convert your policy as if you are as healthy as when you first purchase the Term Life Insurance.
4. Financial Security to Your Surviving Family
Because Permanent Life insurance gives you coverage for your entire life, you are secured that your family will be taken care of even after you die. You do not have to worry if you die after the term of your insurance if you only have Term Life Insurance. The death benefit that your family will receive can be used for final expenses like medical bills and funeral expenses.
Aside from those, there are other expenses that need to be addressed. If you have some estate, estate taxes can be paid from your insurance benefits. The benefit that your surviving family can get can surely take care of the needs of your spouse and children. That will include mortgage payments, school tuition fees, or even special child care.
5. Mortgage Protection Insurance
Most mortgages that young couples or Americans buy are for 30 years. It is the biggest debt they will usually ever incur. Most Americans move more than once in their lives with their families. As a couple turns 50 to 55 years old, they usually still have a good 12 to 15 years left on their mortgage. The best mortgage Insurance Protection Plan is one that pays off their mortgage in the event one of the spouses passes away before retirement thus leaving the home free and clear for the other spouse.
Convertible Term Insurance plans are perfect for this scenario and should be one of the first things a Qualified Licensed Insurance agent addresses in the later years. Making sure that you have convertible Term insurance is critical and many plans out there don’t have these features, sad to say. A Qualified Agent should always address this need when a customer is seeking Term Insurance Protection.
It is important to remember that converting your Term Life Insurance comes with an expiration date. This means that most insurance companies will give you a specific time only when you can convert your policy. The safest way to prevent yourself from missing your conversion window is to review your policy with your licensed insurance agent each year. A licensed insurance professional can help you convert your term insurance into a permanent policy that will best suit your family’s current financial needs.
To find out more about Term Life Insurance and to get a free and confidential quote, call the professionals at BBIFinancial at (800) 958-1525.