The life insurance conversion gap
Did you know that most term life insurance policies are convertible to permanent insurance?
It’s called a conversion option, and it may have an expiration date that’s earlier than the end of your level term premium. Sometimes, years earlier. That’s why, even if the end of your term is a few years away, you need to be aware of your options now.
Here’s how it works: Instead of your insurance expiring at the end of the term, by filling out some paperwork, you can maintain coverage for the rest of your life — and your beneficiaries can have the security of the death benefit — as long as you pay a premium. And you don’t need to get a new health rating.
What do you need to do?
- Check your policy (or talk to your insurance agent) and see if there’s a “conversion option.”
- Don’t delay, though: Your policy may only be convertible up to a certain date, well before the end of your term
So what’s the catch?
The catch is that with permanent policies, insurance companies charge more. Much more.
Take the example earlier. Say you got your $1,000,000 term insurance policy as a “Preferred Non-Smoker” and have been paying $7,000 a year. Now, at age 69, you still have the same health rating, but your “level premium” (what you’re expected to pay every year) is now $36,000. That’s 5 times as much.
No wonder only 2% of all term life policies are converted to permanent life insurance.