Update for the COVID-19 Pandemic of 2020
COVID-19 poses a great threat to the health of every person on the planet. Now, more than ever, it’s time to truly think long-term about your life insurance and whether you’ll want to keep it beyond the initial level term period. With a solid “conversion” option, you can keep as much or as little of your life insurance as you want. You can continue past the level payment period indefinitely- all without a medical exam. During the COVID-19 crisis, permanent life insurance has become more attractive as policy owners who may have contracted the disease can become susceptible to long-term respiratory damage which would make it impossible to qualify for new life insurance coverage. You can read more about other non-medical approaches to life insurance and what’s happening in the industry here.
What Is Life Insurance Conversion?
Term insurance policies are only made to last a certain length of time, called a term.
Once that period ends, so does the policy.
Policyholders can then choose to keep their policies after their term ends by either buying a new policy or converting an existing term insurance policy to a permanent one.
Converting into a permanent, whole life coverage is a perfect alternative if you decide you want financial security for the remainder of your life. You can go here for a good description of the differences between term and whole life insurance if you need to brush up.
Critical Takeaways For Life Insurance Conversion
Term conversion choices are contained in most quality term life insurance contracts for free.
Should you decide you no longer want a term life insurance policy and instead rather have permanent life insurance, a life insurance conversion allows for this switch.
The deadlines in which you can convert and the type of new permanent insurance product you can switch to will vary based on your particular plan.
Some companies also have minimum and maximum face amount requirements when converting.
Permanent policies cost more than term policies, so take note that your premiums will grow if you choose to convert.
What’s A Term Conversion?
Term conversion is when all or a number of your term insurance policy is converted, or “switched” into a long-term or “permanent” life insurance policy (e.g., a whole life or universal life policy).
Most term life insurance policies include a conversion agreement for free.
This option means that in the event you decide you need permanent life insurance, you can convert regardless of your health.
However, you need to before the deadline listed on your policy.
Benefits Of A Conversion Option
You maintain the original wellness rating from the expression coverage when you convert, even if you have health difficulties or be uninsurable.
It is possible to decide if and how much of the policy to convert (as long as it is before the policy conversion expiration date.)
You can start building cash value with all the newest permanent policies.
You may opt to have a life insurance policy for your entire lifetime.
What’s A Partial Life Insurance Conversion?
Partial term conversion is when you take a portion of your term coverage and switch it to a permanent policy.
In doing so, you now have two separate policies.
For instance, if you only convert a partial amount, your new term coverage premiums then reflect whatever coverage amount is left in your term policy.
For example, if you’re paying $20 a month for a $500,000 term insurance coverage and then you opt to convert $250,000 into a permanent policy, then your duration premiums will subsequently fall to $13 monthly, the cost of having a $250,000 policy.
Find Out How Much Term Insurance You Need
The main reason you would consider a partial term conversion would be if you couldn’t afford the premiums on a full conversion or don’t require the total amount converted to a permanent policy.
Keep in mind if you do a partial conversion, your term policy should still meet the program’s minimum face amount.
Example Many companies provide you the choice to convert different amounts at different times.
This might help offset the expenses of going from term to permanent insurance.
It is essential to be aware that not all life insurance companies permit partial conversions.
Term conversion is when all or a number of your term life insurance plan is converted into a permanent life insurance coverage (e.g., a whole life or universal life policy).
How Does A term Life Insurance Conversion Work
Each term insurance conversion rider comes with an expiration date.
This expiration date varies by company and product.
You’ve got until this expiration date to convert your term policy into a permanent policy without needing to undergo underwriting again; however, your age will be considered.
You have the choice to convert either based on your current age(attained age) or your age at the time you took out the expression coverage ( original age).
If you convert according to your present, or attained, age, the expense of insurance would be more expensive, but you will not need to pay a lump sum at the time of issue.
Should you convert based on first age, you’ll have to pay all back premiums and interest once you switch, however, the annual cost of insurance will be cheaper.
You can discuss with us which choice would be most suitable for you.
Important Note: By converting to a permanent policy, your premiums will be approximately 10-15x higher in contrast to a term policy premiums.
Converting from term life to a permanent policy will raise your premiums because permanent insurance is significantly more expensive.
But should you need to keep your life insurance coverage and have since developed health issues, switching to permanent will probably be less expensive than applying for a new term policy entirely because at that point your health will be taken into account.
Another difference–other than the price –between term and permanent life insurance is how much coverage you typically need.
With term insurance, you are usually aligning your duration length in time together with the years of your life where you have the most debt, e.g., a mortgage, raising kids, college tuition, etc..
If you wind up wanting to convert to permanent insurance, you likely won’t need as much coverage.
Your children may be grown, and your mortgage is a lot closer to being paid off.
Examples Of Life Insurance Conversions
Here is a Fast summary of term conversions:
Regardless of risk class, you were approved for if you bought the term coverage, you keep if you convert, even if your health has deteriorated.
Your present age will be taken into consideration when deciding your new permanent coverage’s pricing if you don’t elect for original age and cover a lump-sum.
Your coverage premiums will be more expensive once you convert to a permanent policy.
Some insurance carriers require a minimum amount of coverage to be rendered on the original term coverage if you are performing a partial conversion.
Every life insurance carrier has its limitations regarding when you can convert.
As an example, some carriers do not allow you to convert within the first five decades, some only let you convert over the initial twenty years, and some will allow you to convert at any time.
Life insurance carriers place a maximum age for if you’re able to convert.
For most carriers, this age is either 65 or 70.
In case you have term insurance coverage, and your conversion expiry date is coming, and you want to be insured for a more extended period of time, you have two choices: convert to a permanent policy or buy a new policy.
If you’re still as healthy as you were when you took out the coverage (or maybe healthier now?), you might want to inquire into the cost of a brand new policy versus converting to a permanent one.
With new term coverage, you won’t have access to amassing cash values like permanent policies offer, but you could be guaranteed for another term at a significantly lower cost in comparison to permanent insurance.
But if your health has deteriorated even in the slightest, you’re a perfect candidate for converting.
The majority of the life insurance firms we work with automatically include life insurance conversion options on their life insurance products.
Some insurance carriers forgo this option in order to make their process faster and premiums somewhat more economical.
When you shop for life insurance through CB Acker Associates, you’re going to have term life quotes that offer the option to convert to a permanent policy before you apply.
Take The Next Step
To support you as you safeguard your family’s financial security, I’ve created an up-to-date guide for parents who need life insurance.
My guide can help you with your long-term life insurance goals, especially with little kids at home!
Here at CB Acker Associates, we want to help you take care of your family.
If you’re ready to find a policy that fits your needs and your budget, we can help!
With access to all the top-rated life insurance companies, we work extra hard to get you the best life insurance rates possible.
You can even compare prices and benefits from over 40 providers with no obligation to buy here.
Plus, it’s fast—under 60 seconds kind of fast. [email protected].