Term Life Insurance vs. Convertible Term Life Insurance
Convertible term life insurance is a slightly more expensive version of life insurance because it gives you the option of converting your expiring term policy into something else.
Cost of premiums
Convertible term policies are more expensive because you can change your policy into a permanent policy at the expiration without reviewing your health qualifications. Avoiding the medical exam and any health findings at the time of conversion is a cost built into the convertible premiums.
Note: When you convert to a permanent policy, your premiums will still go up even further because permanent life insurance is more expensive than term.
Availability of Coverage
With term life insurance you can choose term lengths ranging between 1 and 30 years on average.
By comparison, convertible life insurance has some limits on available coverage based on your age when the policy is started. For example:
- Until the age of 49, you can choose a 30 year convertible term.
- Until age 54, you can usually only choose a 20 year or less policy.
- Until age 57, you might only qualify for a 15 year term policy.
- Until the age of 62, you might only qualify for a 10 year policy.
Investment value
Convertible term policies will offer an investment value like a cash value account once they convert to a permanent policy, whereas term policies never do.
Who it is best for
Convertible term policies are best for people who A) have financial obligations in the present which they want to cover and B) want to change their policy after financial obligations have been met with a permanent plan.
For example:
Anthony has a mortgage, student loans, and a car loan. He picks a convertible term policy so that the term is $1,000,000, enough to cover all of that.
When it expires, he converts it into a permanent policy for $500,000, enough to give each of his kids a small inheritance, while his wife keeps the other assets (now paid off), once he passes away.
Now take the same example but slightly modified:
Anthony has a mortgage, student loans, and a car loan. He picks a 20-year term policy so that the term is $1,000,000, enough to cover all of that.
When it expires, he does not have any additional expenses, nor does he have children for whom he is providing an inheritance. His spouse will keep the house, other benefits from his successful business, and assets.
Term Life Insurance vs. Convertible Term Life Insurance: Which Is Better?
If you plan on having a different policy for other needs after financial obligations are paid, convertible term is better.
|
Term |
Convertible Term |
How long the policy lasts |
A set number of years, based on your policy |
A set number of years, then converts to a permanent policy that lasts your lifetime |
Premiums |
Based on health, but more affordable |
Based on health when the policy is taken out, and then converts to premiums corresponding to your permanent plan. |
Investment options |
None |
Cash value accounts that you can access once it converts to a permanent policy |