Term Life Insurance Conversion Option | Converting Term Policy
If you have purchased a term life insurance policy, your policy most likely has a provision called a life insurance conversion option. This option allows you to convert your term insurance policy into a permanent life insurance policy, usually universal life insurance or whole life insurance.
The major advantage to converting to a permanent policy is that you keep the life insurance risk classification that was originally assigned when you first bought the term policy, regardless of your current health. The risk class determines the premium. As an example, if you were given a Preferred risk class when the term policy was purchased and you just had a heart attack recently, converting the policy would allow you to keep the Preferred rate on the conversion, even though there is no chance you would now otherwise qualify for a Preferred rate.
Since life insurance conversions are for permanent insurance, you can usually guarantee the death benefit and premiums for the rest of your life (some exceptions may apply). If you cannot afford the premiums to guarantee the benefits for life, you may also “dial down” the number of guaranteed years to reduce the premium (e.g. reducing the guarantee from age 120 to age 85, for example).
Keep in mind that the premium you pay for the converted policy is based on your current age at the time of conversion. If your term insurance policy is purchased at age 35 and you convert to permanent coverage at age 50, your premium would be based on age 50 for the permanent policy. So the longer you wait to convert, the more expensive the premiums will be.
Some policies have limitations on the number of years you can convert before the option expires. Many life insurance companies will allow you to convert for the full guaranteed period (10 year conversion option on a 10-year term policy, 20 year conversion option on a 20-year term policy, etc). Other companies may only allow the conversion option for a shorter period of time, such as the first 5 years on a 30-year policy. Make sure you know the life insurance conversion options for your term insurance before finalizing your coverage choice.
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