The process of changing a term life insurance policy to a permanent life insurance is known as life insurance conversion. The upgrade to a permanent coverage is done based on the health status of the policyholder when he got the term life insurance and not his current health condition. Thus, conversion becomes a good option for those who were originally in the best of health but whose health levels have deteriorated over the years. With the benefit of life insurance conversion, you don’t have to provide evidence of insurability, allowing you to fork out the same premiums that any person of your age who is in excellent health would pay.
An insurance company may offer term life insurance conversion credit on some policies. This refers to a discount that the insurer may give to those who convert their term life policies to permanent policies which results to lowered premiums for the first year. Typically, the term premium amount paid that year will be deducted from the first year’s premium of the permanent policy.
Let’s say you pay $350 for your term life policy and you want to convert that to a permanent one that has an annual premium of $3,000. If the insurer gives a conversion credit that is equal to the annual term premium then you will only be paying a premium of $2,650 for the first year. In most cases, the conversion credit is only given in the year you convert. You then go back to paying the regular premium in the succeeding years.
Take note that not all insurance companies offer term life insurance conversion credit. For example, insurers that don’t offer permanent policies naturally do not offer this incentive. Thus, if you believe that there is a chance that you might convert to a permanent policy down the road, make sure that you ask the insurer if they have conversion credit in their term life policies.
Aside from the conversion credit, you should also determine the other conversion limitations that your term policy might hold. Some policies limit the conversion to a permanent product to 70 years old. Others go five years longer and limit the conversion age to 75. The older the maximum age of conversion gets the more beneficial for you. You may also need to look at the kind of permanent policies that you can convert to. Some insurers only allow you to convert to a policy of their choice so you are basically left with just one option. Others may give you the flexibility to convert to any permanent policy. The latter is better because you can select a more affordable plan.