Pros & Cons of Convertible Life Insurance

When you are shopping for life insurance, a convertible term policy may be a good option. Convertible term life insurance is a type of term life policy with a rider giving the policyholder the option to convert to permanent life insurance later. Although it offers several benefits, convertible life insurance may have certain disadvantages.

Term life insurance is the simplest form of life insurance protection and the easiest to buy. It provides the largest death benefits for the premiums paid. However, term life insurance does not build cash value, and the protection it provides is temporary. When the term ends, nothing is left, whether you pay premiums for 10, 20, or 30 years. You may want to convert to permanent life insurance for life-long protection while building cash value.

It can be said that convertible life insurance gives you the best of both worlds. It provides the affordable protection of a term policy now and the option to convert to permanent life insurance later on. If you decide to convert, you keep the same health rating you had when you purchased the convertible term policy, with no medical exam or health questions that may reveal new health issues that could raise your premium costs.

A convertible policy gives you the flexibility to adapt your life insurance coverage to changing life circumstances. Some policies give you the option to convert to permanent life insurance within a particular time frame, such as the first five years. An Extended Conversion Rider (ECR) may also be available for an additional charge. An ECR allows you to convert to a permanent policy at any time for the entire length of the term of the policy.

Age and health are two major factors affecting life insurance premiums. Convertible term life insurance allows you to purchase a term policy at lower rates while you are younger and healthier and convert to permanent life insurance with the same health rating later on, when you may be better able to afford higher premiums for permanent protection, without going through a medical exam or health questionnaire. Keeping your original health rating can mean lower premiums.

Convertible term life insurance may be marginally more expensive than a non-convertible term policy. Convertibility may not be necessary if you are purchasing life insurance to cover a specific financial obligation with a time limit, such as a 30-year mortgage. An employer-sponsored convertible term life insurance policy may not be convertible or even portable if you leave your job.

Convertible time life insurance can give you greater flexibility and financial confidence, although it may not be necessary in all situations and may cost slightly more than a non-convertible term policy. Our experienced agent can help you purchase the right type of life insurance to suit your situation at the lowest available rates.