What Is Convertible Insurance?

Convertible insurance is a type of life insurance that allows the policyholder to change a term policy into a whole or universal policy without going through the health qualification process again. Convertible insurance lets the insured convert a policy that only covers the policyholder’s beneficiaries for a predetermined number of years into a policy that covers the policyholder's beneficiaries indefinitely, as long as the policyholder continues to pay the insurance premium.

KEY TAKEAWAYS

• Convertible insurance is a term life insurance policy that can be converted into a whole or universal policy without a health test.
• This feature of convertible insurance helps to save on the expenses involved in purchasing a new policy.
• Convertible policies generally charge higher premiums once the conversion is finished.

Understanding Convertible Insurance

If the policyholder decides to make the conversion on their convertible insurance, the permanent policy will have the same value as the term policy, but the permanent policy will have higher premiums. Even before conversion, convertible insurance will be more expensive than a term life insurance policy for the same amount of coverage, because there is a built-in cost for the option of being able to make the conversion without a medical exam.

The benefit of convertible insurance is that the policyholder doesn't have to go through the medical underwriting process again to switch the policy from term to permanent. This is a valuable feature. If the policyholder's health has declined since they started the convertible term policy, they will be able to obtain a permanent policy that they otherwise might not qualify for.

With convertible insurance, the policyholder only needs to pay their insurance premiums on time to retain the option of converting the policy from term to permanent.

Advantages and Disadvantage of Convertible Insurance

You might choose a convertible term policy if you can only afford a less expensive term policy now, but think you might prefer and be able to afford a more expensive permanent policy later and don’t want to take the risk that a change in your health could disqualify you from life insurance coverage.

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