When does it make sense to convert Term into a Permanent Life insurance policy? The answer is…it depends. There are several factors in play including your health and the type of policy being converted to.
I recently met with a couple to review their life insurance policy. I review a lot of policies because I find it is pretty normal for anyone to forget what they bought twenty years before. Can you remember what you shoes you bought twenty years ago? Neither can I.
Review your life insurance coverage to make sure it’s relevant
With this particular couple they had been under the impression that they had a permanent life insurance policy. It was in fact a term policy. If you have term and want permanent the easiest thing to do would be to convert the term to a permanent life insurance. Typically, you can do this regardless of what has happened with your health. Sometimes you can convert right up to the end of the term policy. Sometimes you have to convert several years before the policy ends.
It just depends on how the term policy you have is worded (and if they have any conversion options at all). Conversion is sometimes the only way to secure a permanent policy. If you have health issues you might not be able to get a new policy and conversion is literally the only way you are going to get a permanent insurance policy.
Do you have any conversion option at all?
The key thing at this stage is to check to see if the company provides different types of policies to convert to. There are whole life policies. There are Universal Life policies. There are Guaranteed Universal Life policies. There are policies with accelerated benefits and policies with Long Term Care benefits.
Sometimes there are no options. There might be one policy you can convert to and that is your one and only choice. Often, that policy is not the greatest policy in the world. You might think that all life insurance is the same, but it’s not.
Not all Life Insurance is Priced the Same
If one company charges $6450 a year in premium for a $400,000 death benefit another might charge $6973. Another might charge $7630. They will all have differences as well. Some might build up cash value quicker than other. Some might not build much cash value at all. Some might have accelerated benefits, and some might not.
What your policy converts into might be a great option and it might not. Generally, if someone can get through underwriting, I find a new policy (where we can pick the policy and the benefits) is preferable to the conversion option. In fact, the only times the conversion option has been the best option is when it is really the only option (i.e. the person’s health won’t allow them to get a new policy).
A New Policy Might be More Cost Effective Than Conversion
For the couple I reviewed their conversion option was over $7000 in premium. A new policy with the same coverage amount was only $5500. That’s a big difference. Before you convert your term policy call me to review your options.