Index | Life Insurance | Convertible Term Insurance
Convertible Term Insurance
Convertible Term Insurance allows the policyholder to change the face value of the term policy in force into a permanent form of Life Insurance, such as Whole Life, Universal Life or Variable Life, without any penalties or evidence of insurability. With the conversion provision the insured has an opportunity to expand the coverage in accordance with the changing life circumstances and financial needs. Convertible Term Insurance is often initially purchased at a young age because the premium costs are relatively low and the coverage includes all the basic features normally offered by Term Insurance policies. At a young age Convertible Life Insurance provides sufficient coverage to meet simple needs and protect against a premature death. At an older age and under different life circumstances this form of Term Life Insurance may not be insufficient and policyholders may decide to upgrade their coverage to a Permanent Life Insurance policy with investment value that will enable them to cater for their long-term needs. In this case premiums required to keep your policy in force may increase.
The transition from a Convertible Term policy to a policy with the cash value component is normally easy as no underwriting is necessary and it involves no risks. But you should remember that the conversion period allowed by your contract is generally shorter than the duration of the term coverage.
The survey of the available options that allow you to expand your policy reveals that the optimal option is a Whole Life policy. Whole Life policies ensure a number of provisions and benefits you can profit by. For example, a Whole Life policy started from a Convertible Term policy may offer a level premium option. It can be convenient as it gives you certainty that your premium payments are stable and will not change regardless of your age or state of health. You are also allowed to take a lump sum as a policy loan against the cash value of your policy. Under certain provisions stipulated in the contract, your converted Whole Life policy may start paying you dividends with time. Your contract can also offer a selection of optional riders to complement your coverage.
Of course, the options to expand your policy are not limited to Whole Life Insurance only. You may choose from the types given in your policy as optional. At the same time any policy has underlying disadvantages and you should be aware of them. For example, under a Permanent Life Insurance contract a policyholder can be subject to increased premiums, decreased death benefits and decreased cash value. All the characteristic disadvantages are outlined in the corresponding sections of Permanent Life Insurance types. It is recommended to be familiar with them when you are choosing a Convertible Life policy to suit your needs and opportunities.
Convertible Term Insurance is sometimes offered as a supplement to a Renewable Term Insurance policy allowing you to upgrade to a permanent policy without any medical examination or increased premium payments when your regular term payments become too expensive if your health deteriorates.
On average, if Convertible Term Life Insurance is purchased and enacted at a young age, it can provide a good basis from which to build on in years to come due to its inherent ability to build up cash value and capitalize earned interest. This mixed type of Life Insurance turns out to be a cost-effective decision for an individual who purchases it with a perspective to turn it into an investment instrument under any of the available Permanent Life Insurance plans. In general, the conversion provision according to which your initial Term Life coverage can be changed for a Permanent Life Insurance policy is a significant contribution to the initial coverage, as in addition to a longer-term protection you receive, the number of benefits and options available also increases. For many people Convertible Term Insurance becomes a viable option as it provides enough flexibility with investment and ensures a decent future for your dearest and nearest.