What Is A Conversion Option On Term Life Insurance?

Term life insurance conversion option is mostly attached to every insurance policy, and this is how it works.

Life insurance policies give financial protection to policyholders when they die. The aim of purchasing these policies is to ease the financial pressure on families of the deceased by giving them a guaranteed death benefit.

The most common types of life insurance policies that most people purchase are whole life insurance and term life insurance.

Whole Life Insurance vs. Term Life Insurance

Whole life insurance policies come without an expiry date; just like the name suggests, whole life insurance policies give lifetime protection to the policyholder.

There are two basic components of whole life insurance: accumulated cash value and death benefit. The death benefit is a guaranteed amount that the beneficiaries receive upon the death of the policyholder, but an accumulated cash value account grows over time. This can be borrowed or withdrawn even during the life of the insured.

A term life insurance on the other hand comes with an expiry date because it is only valid up to a certain term. A term life insurance conversion period is usually 10-30 years and this policy only gives a guaranteed death benefit. If the term ends, the policy lapses. If the policyholder is still alive, there is no payout (except if you have a return on premium rider attached with the policy).

Naturally whole life insurance premiums cost more than term life insurance because they provide lifetime protection, and this is why a lot of people opt for term life insurance only to ease the financial burden on their families after they die.

But, if you have a term life insurance policy and you wish to convert to whole life insurance, the conversion option is also possible! Let’s get to how it’s done.

Term Life Insurance Conversion Option

A term life insurance coverage option allows policyholders to convert their term life into whole life policy. By the end of the term even if a policyholder’s health condition has worsened, they can still avail the conversion option.

Most policies have a conversion option, but often they come with a specific validity date. The insurance company often gives you a date by which you have to avail the conversion option if you wish to.

When you ask for conversion on your term life policy, you will be required to pay a higher amount of premiums because now you’re older and demanding lifetime protection. The good part is that when you’re just converting, the insurance company will not ask for a medical exam or some other proof of your insurability. They will only consider your payment record and how prompt you were in paying your premiums each month.

Best Term Life Insurance Options

Here is a list of all the best term life insurance companies where they offer convertible term life insurance and their rates that you can compare, to find the most suitable policy for yourself.

These rates are for an average 35-year old person in excellent health. The term life policy duration is 20 years and face value is $100,000.

Company Life Insurance Score A.M. Best rating NAIC complaint index Term life insurance quote
1. Massachusetts Mutual 139 A++ 0.12 $124
2. Lincoln Financial 133 A+ 0.16 $126
3. John Hancock 131 A+ 0.31 $115
4. New York Life 128 A++ 0.29 $137
5. Guardian Life 128 A++ 0.08 $162
6. Protective Life 127 A+ 0.54 $110
7. Northwestern Mutual 126 A++ 0.08 $165
8. Principal Life 125 A+ 0.21 $142
9. Minnesota Life 122 A+ 0.21 $147
10. Brighthouse Financial 125 A 0.59 $118

Note: Sample rates have been extracted online, courtesy of ValuePenguin.

Converting Group Life Insurance to Individual

The conversion option is not only valid on converting term life policies to whole life policies, these are also applicable to converting group life insurance policies to individual policies.

A group life insurance policy is opted by employers who wish to insure their employees under a single policy. As long as an employee is covered under the employer’s group policy, it’s good, but when they decide to leave their job, they might be looking to convert the group insurance into an individual one.

Group life insurance conversion rights say that a person is allowed to convert their group policy into whole life insurance or a single premium convertible one-year term policy. Usually a conversion period of up to 31 days is issued by the time of the termination or reduction of group life insurance coverage. The insurance company will proceed with the application based on the fact that the insured was already covered under a plan, and doesn’t need to apply for a health examination.

Should you buy a conversion option?

The answer to this question is rather subjective, because the answer to it lies in every different person’s needs. The most common reason as to why people go for converting term life insurance to whole life is when their policy is close to lapsing and they don’t want to renew it. This option works for people who’ve gotten a severe medical illness and their health condition has worsened- such people may not get a new policy based on their health. So to avoid giving a medical exam and starting the process all over again.

However, be ready to pay a higher amount of premiums because whole life insurance gives you lifetime protection! Most people don’t take this fact into consideration and it ends up messing with their monthly budget.

Whatever insurance policy you opt for, just make sure you’re associated with a genuine company with authentic ratings and the policy is crafted out for you. Of course, timely payment of premiums is most important to keep the policy in force or else it will lapse.

Nabeel Ahmad

Nabeel Ahmad

Nabeel Ahmad is the founder and editor-in-chief of Insurance Noon. Apart from Insurance Noon, he is a serial entrepreneur, and has founded multiple successful companies in different industries.

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