What is a convertible insurance policy?
I'll give you an example that is a composite of cases in my files.
Bob is 35 years old and needs life insurance for family protection. He wants to make sure his wife and kids are provided for if they tragically lose him. So he buys $2 million of a 20-year term, thinking that should be sufficient coverage until his youngest child is out of the house. He is young and healthy, so the premium is pretty low.
Now fast forward 15 years. He has a second mortgage, and two more kids. He realizes that he only has five years left on his premium guarantee, but certainly needs life insurance way past that point. But here's the kicker: he unfortunately had a heart attack last year, and a number of other serious medical complications. You wouldn't expect this in such a young guy, but these things happen. He wants to buy another term policy, but many carriers won't even touch him. The ones that are interested want to charge an arm and a leg.
Fortunately, his current term policy has a conversion privilege. He can switch to a permanent policy and lock in a guaranteed premium for the rest of his life. Best of all, he will not have to go through underwriting - the completion of a simple application will suffice for an approval. He will get charged the rate for someone his current age, but it will be at the original rate class. If he was approved at preferred non-smoker rates for his term insurance, he will be converted to a permanent policy at the same rate class.
In this situation, the term conversion is a real coverage-saver. Bob would basically be out of luck in getting a new policy because of health problems he didn't foresee down the road. The moral of the story is this: you cannot take your insurability for granted. God willing you stay healthy, but there is no guarantee. Start thinking about locking into rates on a long-term basis. The conversion privilege can help you do that.
"Term" life insurance is a policy that provides the insured person coverage for a certain period of time. On the other hand, a "whole" or "universal" policy is considered permanent, providing coverage for the entire life of the insured.
Now, a "convertible term" policy allows the insured to covert a term policy to a permanent policy at a later date. As long as the conditions of the policy have been maintained and payments made on time, the insured person is not required to undergo any new or additional screening at the time the policy is converted, regardless of his/her medical condition. This type of policy provides the benefit of obtaining less expensive term life insurance now while maintaining the option to convert to a permanent policy at a later date as insurance needs and financial resources change.
This is usually a term life insurance policy that allows the owner to convert the policy to a permanent life insurance policy within a specified period of time or by a certain age of the insured. The premiums will be calculated based on the age of the insured at the time of conversion and the type of permanent policy being issued. The original health rating the insured received with the term policy will be extended to the new policy without any underwriting requirements.
The information, data, analyses and opinions contained herein do not constitute legal advice offered by Kinetic and are provided solely for informational and educational purposes. While the information and statistical data contained herein are based on sources believed to be reliable, Kinetic does not represent that it is accurate and should not be relied on as such or be the basis for a decision. Kinetic Financial & Insurance Solutions, Inc. and Kinetic Investment Management, Inc. are two separate entities. Insurance products and services are offered and sold through individually licensed and appointed agents in all appropriate jurisdictions under Kinetic Financial & Insurance Solutions, Inc. Investment Advisory Services are offered through Kinetic Investment Management, Inc. a registered investment adviser.
A convertible Life Insurance Policy is a Term Policy that can potentially be converted into a Permanent Life Insurance Policy. The terms vary between companies, so make sure to work with a Trust financial planner to get the best coverage for your loved ones. Some "convertible" policy are sold by companies that don't actually offer permanent insurance, so there is nothing to covert to. Also convertibility period varies from company to company. The longer you have to convert the policy the better.