Term life insurance may make sense now, when funds are low and insurance needs are high. But this may not be the case a few years down the road. That’s why when you purchase term insurance you should make sure there is a convertibility option within your contract. A convertibility option allows you to convert your term life policy into a whole life policy within a stipulated time frame, without having to prove insurability. When your financial position becomes more stable, you may want to opt for whole life insurance that adds a savings component to your policy. Your premiums accrue interest while providing your family with life insurance coverage.
Advantage of Whole Insurance
The first question that comes to mind when considering conversion from a term insurance policy to whole life is: Why would I trade in my inexpensive term life insurance policy for a more expensive whole life policy? You’re not! Whole life has several advantages over term life and there are good reasons why you should consider converting your term life insurance policy to whole or permanent life insurance:
Whole life has a savings component. A portion of the premiums you pay accrues interest which adds to the face value of your coverage.
As you age, life insurance companies consider you to be at higher risk of death. Therefore, premiums go up. If you suffer from any health issues, your premium rates will go up even further. If your term insurance ends when you are say, 50 years of age, and you still feel the need for life insurance (most people do, at least to cover funeral expenses, etc), life insurance at this age may become an expensive proposition.
With whole life insurance, premiums remain steady throughout life. Since you do not have to worry about your policy terminating after a certain term period, you need not worry about worsening health conditions or increasing age affecting your premium rates.
If you’re hard up on cash, you can borrow money from your whole life policy up to a certain amount, without any questions asked.
Whole life insurance offers lifetime coverage. You must pay premiums up to the age of 100, but when your whole life policy reaches a certain maturity level you can use the interest accrued to pay premiums. If you are still alive after the age of 100, you need not pay premiums but your coverage is still in effect.
The interest accrued along with the face value of the insurance policy is tax-deferred.
Term Life Insurance – Advantages of a Convertibility Option
By using your convertibility option you will be able to convert your term insurance policy to whole life without have to prove insurability. This means you do not need to go through a medical examination. However, your premiums may go up based on your age at the time of conversion or, in some cases, premiums may be calculated on the age you were when you originally purchased the policy.
You have the option to convert all or a portion of your coverage to a whole life policy. For instance if you purchased a $250,000 term insurance policy, you could convert $100,00 to a whole life policy and keep your term insurance coverage at $150,000.
Most term life insurance policies with a convertibility option stipulate a time period within which a term life insurance policy can be converted to whole life. It may be a specified time period after the policy has been issued, or before the policy owner turns a certain age. Before you decide to convert your term insurance to whole life, you should take financial stock of your life and assess your probable financial position in years to come. Ask yourself questions such as: Do you expect your insurance needs to diminish as time elapses? Do you expect to pay off all your debts before you reach retirement age? Based on your family health history, do you expect any changes in your health as you age? Will you be able to leave enough money behind to pay off your funeral expenses and estate taxes, if any? Many people like to use a life insurance policy to leave wealth behind to their children or grandchildren. Consider your needs and how converting from term insurance to whole life would benefit you and your family.
What if your term life insurance does not have a convertibility option?
If your term insurance policy does not have a convertibility option, switch to one which does. You’ll find the best rates for term insurance online. Ask for free quotes on reliable site certified by the Better Business Bureau. This will give you opportunity to evaluate prices, look for free riders, and compare company ratings. Since such sites have a huge database of reputed life insurance carriers offering competitive rates, chances are you’ll find a term insurance with a convertibility option that is cheaper than your existing policy!
