If you have a term life insurance policy, and you are interested in converting some or all of the policy to a permanent whole life insurance policy you have come to the right place. We have years of experience in helping clients get the best insurance rates from a term conversion and helping to protect their families for years to come.
Alternately you may be considering a term conversion in order to keep your life insurance coverage in place, but may want a cheaper solution. A new term policy can help, and it may even be less expensive than your last policy! We recommend that if you do not absolutely need life insurance for rest of your life you consider looking at prices and possibly purchasing a new term life insurance policy instead. Term life insurance rates are very competitive, and the cost of term life insurance tends to drop over time so it may be a less expensive solution.
Life insurance agents tend to push term conversions on clients because they know that the commissions are higher. Unfortunately not every client needs whole life insurance and some may benefit from simply purchasing a new term insurance policy. We can compare rates for both term conversion and new term policies for you, and let you decide which way benefits you the most.
Term Conversion Explained
Most term life insurance policies sold from major insurance companies are eligible for a “term conversion”. This is also known as a term conversion privilege. This means that a part or all of the term life insurance policy (which expires) can be converted to a whole life insurance policy which builds cash value and whose coverage will remain in force for the remainder of the insured’s life.
This conversion of the policy to whole life can occur part way through the life of the term policy, or after the policy coverage period ends, depending upon the specific policy. In some policies the conversion period is limited to happening before the end of a certain policy year.
Reasons for Term Conversion
The biggest reasons in favor of a conversion to a whole life policy from a term policy would be to preserve life insurance coverage for someone’s entire life or to preserve a favorable underwriting rating after a decline in health. By purchasing a convertible term life insurance policy when the insured person is young and healthy, even if they can not afford whole life insurance at that time, they give themselves the ability to convert at a later time when they have more money without having to worry about their health rating.
Whole life insurance also builds cash value, and can actually make the owner money over the long run. Using whole life as an investment through a term conversion can be a lucrative proposition for many owners.
Underwriting Rating Based On Term Policy
A term conversion does not require new underwriting, and no proof of insurability is necessary. The underwriting rating used for the initial term policy will also be used for the converted whole life policy. This is a major advantage of term policies for the owners.
If an insured person has a major decline in health, they do not need to worry about being denied a new policy. Even if they have a terminal illness the option to convert the policy to whole life still exists, and the full policy benefit (of the converted amount) will be paid to the policy’s beneficiaries.
By purchasing a convertible term policy when one is healthy, the ability to maintain life insurance coverage for the rest of one’s life exists despite any changes in health.
Age Used For Pricing can be Attained Age or Original Age
One of the major factors affecting the price of life insurance is the age of the insured person. The younger the age of the insured person was at the time of issue, the less expensive the insurance premium will be ( all else being equal). Term conversions can use two different age structures, depending upon the specifics allowed by a policy.
Attained age will use the age of the insured at the time of conversion. This will result in a more expensive cost of insurance on a yearly basis. The benefit is that there will not be any lump sum payment due at the time of issue, as there will be with an original age policy in most cases.
A conversion done using original age will result in a policy that is less expensive on a yearly basis. This will price the policy for an insured person as if they took out the whole life policy at the age in which they were issued the term policy. The caveat to this is that a lump sum payment will be due in most cases when the policy is issued. This is the price of the less expensive yearly cost going forward. The amount of money owed is equal to the difference in price between the term policy, and what the premium payments would have been if a whole life policy was issued instead of the term policy.
Some policies will only allow attained age, and some may give the owner an option between using attained and original age. The right choice for each owner depends upon which options provides the lower long term cost, and if they are able to to afford the lump sum payment of an original aged priced policy. The original age feature can be very valuable to some people though.
Term Conversions Only To Same Company
The reason at LifeAnt that we suggest comparing term conversion rates to new policies is because term can only be converted to a whole life policy with the same company that issued the term insurance. Life insurance rates are becoming more and more competitive all the time, which is great for policy owners. This means that the cost of insurance is generally trending downward. When a company is offering to convert a term policy though, often they understand that there is no competition because they are the only company that will allow the conversion. This does not necessarily mean that an owner will end up paying more, it could be very lucrative for him/her in the long run. It never hurts to compare options however.
If you currently own a term policy and you are interested in converting the policy, we can help you get the best deal for your money.