- What is renewable, convertible life insurance?
- June 4, 2015
A renewable life insurance term allows a policy holder to renew or extend their term life policy. Many times, this does not include a medical examination.
Almost all term life policies are “annually renewable” after the end of the guaranteed period. What that means is that after the end of the 20 years, the policy can be renewed every year at a premium that increases every year.
A policy conversion is a separate part of the policy where it is written into the contract that someone can convert the policy to a permanent form of insurance for the same or lesser coverage amount, at the same risk classification but current age. In either case, renewing the term or converting do not require proof of insurability. So, while there is an application, there is not an exam.
If you are 25 and healthy with a 20 year term, your health changes during that time and you have purchased a term that says you can renew without a medical exam, you will guarantee future insurability. However, some policies require a medical exam which can impose later problems. If at age 45, your health has declined, being able to renew a term with out medical evaluations will cost much less in the long run. You may not even qualify for a standard term if you have health issues.
Convertible means that a policy can be exchanged for permanent life insurance of equal value without evidence of insurability. This means that if you have 100,000 convertible term policy you can convert it into a permanent policy without an additional health history. However, premiums will increase based on age. But, you may be able to build cash value and in some instances, earn dividends.
According to Michael Bruce at LifeQuotes, Inc., convertibility is a privilege. It is built into the life insurance contract and doesn’t have to be offered. Premiums will increase based on your current age but you will have a policy that is now available for life.
For those with financial restraints, beginning a new family and under 40, convertible term is a great way to pay lower premiums while your children are young. Once they are financially independent, you have a good stepping stone to build for your own needs.
It is important to check with a qualified agent when choosing the best plan for you. Some renewable terms may not allow renewal for more than one additional term and change of health status could raise your premiums. If converting to permanent insurance, make sure your premium is affordable.
Check with your state’s department of insurance for more information. For example, policies in New York currently cannot be renewed beyond age 80 and convertible policies allow the owner of the term life policy to convert during a specified period of time without having to show that the insured is in good health. Conversion periods are important to look into and may vary.
According to American Fidelity, 11 million household with children under 18 haven no life insurance protection. Seventy percent of families with dependent children will have trouble meeting everyday living expenses if a primary wage earner dies. A renewable/convertible policy will offer great flexibility to cover your present needs and plan for the future.
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