Convertible Term Insurance Explained
A "convertible" term policy includes a powerful rider that allows you to exchange your temporary term policy for a permanent policy without taking a new medical exam.
Why is this crucial?
It locks in your insurability. Imagine you buy a term policy at age 30. At age 45, you develop cancer or heart disease. You would likely be rejected for any new insurance. A conversion rider lets you force the insurance company to keep you covered forever, regardless of your new health condition.
The Cost of Converting
When you convert, your new premium will be based on your current age, not your original age. However, your Health Rating remains the same as when you first bought the policy.
- If you were "Preferred Plus" at age 30, you convert to a "Preferred Plus" whole life policy at age 50.
- This is a massive advantage if your health has declined in the meantime.
When Should You Convert?
Most people use this option in three scenarios:
- The Term is Expiring: Your 20-year term is up, but you still have debt or dependents. Converting is often cheaper than trying to buy a new policy at an older age.
- Health Decline: You have become uninsurable due to illness, and this is your only way to keep coverage.
- Wealth Accumulation: You can now afford the higher premiums of permanent insurance and want to use it for estate planning.
Watch Out for the Deadline
You usually cannot convert at any time. Most policies have a specific "conversion window."
- Example A: "Convertible for the first 10 years of the policy."
- Example B: "Convertible until age 65."
Always check your specific contract expiry date. If you miss the window, you lose the right to convert.