Conversion Privilege

What Does Conversion Privilege Mean?

A conversion privilege is a policy provision that gives policyholders the right to convert or upgrade their policy, even in the event of a significant change in health condition. In other words, it prevents insurance companies from increasing premiums or altering the terms of policies for individuals who develop serious illnesses or other health issues.

This provision may also be referred to as a guaranteed insurability option. It shows up most often in term life insurance contracts, where it addresses a specific problem: term policies expire on a set date, and a person whose health has declined by that point may not qualify for a new policy at a reasonable rate.

Insuranceopedia Explains Conversion Privilege

Term life insurance policies often include a conversion privilege, making them known as convertible term life policies. This allows the policyholder to convert their term policy into a permanent one without needing to undergo a medical examination, even if they develop a serious health condition. Essentially, this provision guarantees that the policyholder remains insurable, regardless of any decline in their health.

Whether converting is worth it depends on how the permanent premium compares to what the term policy was costing at renewal, so it helps to compare term versus permanent life insurance before the window to convert closes. Conversion rules also differ by carrier, so shoppers looking at the best life insurance companies should check which permanent products their term plan can be converted into.