What Is Convertible Term Life Insurance?

By Amy Jorgensen

  • Overview

    Thinking about life insurance is rarely an easy or comfortable task. No one wants to think about a time when they won't be around to support their families. There are plenty of unanswered questions: which type of insurance is best, how much insurance do I need, and what if I can't afford enough coverage? Many of these issues can be resolved with a convertible term life insurance policy.
  • Explanation

    Several types of life insurance are available, but term life is one of the more popular options. Unlike whole and universal policies, term life does not cover the insured person indefinitely. Instead, the policy lasts a specified length of time, hence the name "term insurance." Terms are available from one year to more than 30 years, depending on your situation, budget, and insurance company. At the end of the term, your coverage ends unless you renew the policy or purchase a different policy.
  • Considerations

    Term life is a popular choice because of its affordability. People can purchase significant amounts of coverage at reasonable prices. Insurance companies keep costs low, at least initially, because the risk is low. Your chance of passing away during the specific term is low, so the insurance company has a better chance of not having to pay out. Because of the lower risk, term life policies are often easier to get, as well. An important feature in many policies is convertibility.

  • Convertible Term Insurance

    Some term life policies include another feature which is known as convertibility. With these policies, you have the option to change your term life policy into a whole or universal policy before the end of the term. While this does not mean the premiums will still be reasonably priced, it does mean you may be able to get a permanent policy that builds cash value even if you've had changes in your health or your age has increased. Not all term life policies have this feature, however, so check your policy carefully or ask your agent.
  • Good Uses for Convertible Policies

    Young families need more life insurance coverage, yet usually have less money available to pay premiums. By opting for a term life policy early on, they can get coverage while they are still young and in good health. The premiums are more affordable so they can get the larger amount of coverage they need to help support their family if necessary. As their financial situation changes for the better or as their coverage needs are reduced, they can convert to a permanent policy easily.
  • Drawbacks

    Although term life insurance does have benefits, you should weigh those against some drawbacks when determining whether or not this is the right choice for your family. First, term life does not build any cash value. If you renew the policy repeatedly or choose a very long term, you may end up paying more into premiums than what your beneficiaries will receive in death benefits. However, if you opt to convert the policy, this may not be a problem. Also, each time you renew your policy, your premiums will increase. Eventually the policy may stop being an affordable option.
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