What is 'Convertible Insurance'

Convertible insurance is a type of life insurance that allows the policyholder to change a term policy into a whole or universal policy without going through the health qualification process again. Convertible insurance lets the insured convert a policy that only covers the policyholder’s beneficiaries for a predetermined number of years into a policy that covers the policyholders beneficiaries indefinitely, as long as the policyholder continues to pay the premiums.

BREAKING DOWN 'Convertible Insurance'

If the policyholder decides to make the conversion on their convertible insurance, the permanent policy will have the same value as the term policy, but the permanent policy will have higher premiums. Even before conversion, convertible insurance will be more expensive than a term insurance policy for the same amount of coverage because there is a built-in cost for the option of being able to make the conversion without a medical exam.

The benefit of convertible insurance is that the policyholder doesn’t have to go through the medical underwriting process again to switch the policy from term to permanent.  This is a valuable feature because if the policyholder’s health has declined since he or she took out the convertible term policy, he or she will be able to obtain a permanent policy that he or she otherwise might not qualify for. With convertible insurance, the policyholder only needs to pay his or her insurance premiums on time to retain the option of converting the policy from term to permanent.

Why Purchase Convertible Insurance

You might choose a convertible term policy if you can only afford a less expensive term policy now, but think you might prefer and be able to afford a more expensive permanent policy later and don’t want to take the risk that a change in your health could disqualify you from life insurance coverage. Choosing convertible insurance doesn’t mean that you’ll be able to get a permanent policy for the same price as a term policy if you make the conversion; all else being equal, permanent insurance is always more expensive than term insurance because it presents a greater risk to the insurance company.  

When purchasing a convertible insurance policy, make sure you understand when you can convert the policy (for example, each year on the policy renewal date), at what point conversion is no longer allowed (for example, after age 65 or after age 75), and the features of the permanent policy (for example, how much savings it lets you accumulate, how you can invest those savings and whether the policy pays dividends).

RELATED TERMS
  1. Term Life Insurance

    Term life insurance is a type of life insurance that guarantees ...
  2. Without Evidence of Insurability

    Without evidence of insurability refers to an insurance policy ...
  3. Assessable Policy

    Assessable Policy is a type of insurance policy that may require ...
  4. Experience Refund

    Experience refund is the portion of an insurance company’s premiums ...
  5. Variable Life Insurance

    Variable life insurance is permanent life insurance product with ...
  6. Developed Premium

    A developed premium is an initial quote from an insurer based ...
Related Articles
  1. Insurance

    Should You Buy Term or Permanent Life Insurance?

    When choosing between term or permanent life insurance you'll need to consider these factors.
  2. Financial Advisor

    Buying a Life Insurance Policy? Read This First

    Knowing who needs life insurance, how it works and the different types of insurance can help consumers make informed decisions about this product.
  3. Insurance

    Understanding Dividend-Paying Whole Life Insurance

    Take a look at how whole life insurance policy dividends are handled and some important considerations for policyholders.
  4. Insurance

    4 Reasons Why Waiting To Buy Life Insurance Is a Bad Idea

    Understand the benefits of applying for and securing life insurance coverage while you are young and healthy, and learn the cost of waiting to get coverage.
  5. Personal Finance

    The Best Life Insurance for Military Families

    Two of the most common types of life insurance are term and whole life. Here's why the latter isn't a good idea for most military families.
  6. Insurance

    Life Insurance: putting a Price on Peace of Mind

    Would your death leave loved ones financially stranded? Find out how to ease your mind and keep them protected.
  7. Financial Advisor

    7 Issues to Consider When Determining Life Insurance Coverage

    Seven issues to consider when buying life insurance to ensure the coverage is tailored to meet your personal financial situation.
  8. Insurance

    How To Invest In Insurance Companies

    Knowing the special circumstances that insurance companies operate under helps in evaluating whether or not a listed insurance company is a good investment and whether the economic environment ...
  9. Financial Advisor

    Is Life Insurance From Your Employer Enough?

    Covering the needs of the ones you would leave behind is not easy. But efforts to secure a life insurance policy outside of work should pay off.
RELATED FAQS
  1. Can your insurance company cancel your policy without notice?

    Learn about your rights as an insured when it comes to your insurance policy being canceled, including how to access your ... Read Answer >>
Trading Center