What Does The Term Convertible Mean In Terms Of A Life Insurance Policy?

Most term life policies are “level term life insurance,” which means the premium (and death benefit) stay the same for the length of the term, which could be 5, 10, 15, 20, or 30 years. A convertible level term policy works precisely the same way – but it has a provision or “rider” that gives you the option to convert to a permanent life policy later on. If you don’t exercise the conversion option, the policy will continue to protect you until the end of the term with no change.

Term Life InsuranceWhole Life Insurance
DurationSpecific term (5, 10, 15, 20, or 30 years)Lifetime
CostLess expensiveMore expensive
Cash valueNo cash valueBuilds cash value over time
FlexibilityLess flexibleMore flexible

Why would you convert an existing term policy rather than getting a new whole life or universal policy? When you apply for a new insurance policy, there’s an underwriting process in which the insurance company evaluates your age, lifestyle, and health status – via questions and a medical exam – to determine your premium cost. But when you convert a policy, you get to keep the health rating you had when the policy started.

Many term policies have a standard provision that allows for conversion for the first few years, and some offer a rider that lets you extend that. For example, Guardian Level Term policies come with a benefit allowing you to convert to a permanent policy for the first five years of the term. An Extended Conversion Rider (ECR) is also available for an additional charge, which lets you convert to a permanent policy for the term’s entire length.

Each life insurance company sets its own procedures for policy conversion, but generally speaking, the process tends to be straightforward. You should start by contacting your insurance company or agent to see what permanent conversion options are available.

While many people get life insurance through their workplace, you may not have a choice of insurance companies, and the policy offered may not be convertible or even portable (meaning you can’t continue coverage if you leave your employer). It’s easy to shop for convertible policies online. Many insurance companies make it simple to get a life insurance quote online, compare rates for different coverage levels, and apply for a policy.

A term conversion option gives you more ways to protect yourself from life risks and uncertainties. If you have any of the following concerns, you should consider making sure your term life policy is convertible before you sign the dotted line:

  • Health changes can happen during the term
  • Your situation may change, and you may need more coverage
  • You want to avoid the underwriting process when you convert to a permanent policy
  • You want to build value with a permanent life insurance policy

It’s important to understand that convertibility and renewability refer to two very different features of a policy. Life insurance companies may offer term life insurance policies with both features, one of them, or neither. A policy that combines both of the benefits described above gives you more options to deal with life’s risks and uncertainties.

There’s no single answer that’s right for all people. However, if you’re attracted to the life-long protection and cash value growth of a permanent policy, and your current term policy lets you convert to permanent coverage that fits your needs, then it’s certainly an option worth looking into.

This article is for informational purposes only. Guardian may not offer all products discussed. Please consult with a financial professional to understand what life insurance products are available for sale.

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