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Term life insurance with option to convert to permanent

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  • Term life insurance with option to convert to permanent

    Hi, I'm currently in the process of buying term life insurance.  My agent is trying to sell me on adding an option that would allow me to convert the term plan to a permanent one should my health change in the next 20 years and can no longer qualify for cheap, good term life insurance. The example given is of a 40s y/o M who has a devastating stroke and now won't be covered when the term policy expires. In your opinion, at ~$5 more per month to add this option, do you think it's worth it?  Thanks!

  • #2
    I did that for a small portion of my term life (500k) when I first started.  Once net worth increased to a decent level, I canceled that small policy and kept the other non frills term policies.


    • #3
      Most companies do not charge for the conversion option. You typically only pay a higher premium if you extend the conversion option (this allows you to convert from the built in conversion period - typically five years - to the entire guaranteed level premium period in the policy).

      If your ultimate goal is to convert to Whole Life and you are purchasing all of your term coverage from a specific company for that reason, I think you should add it.

      However, if you are simply adding that option in the event your health deteriorates and/or you become uninsurable, you might want to leave it off.

      Another option would be to do some of your term insurance with a carrier like Guardian, MassMutual, Northwestern Mutual or New York Life (with the plan to convert) and layering additional inexpensive Level Premium Term that you don't plan ever converting with a low cost carrier that specializes in term insurance.
      Lawrence B. Keller, CFP, CLU, ChFC, RHU, LUTCF


      • #4
        As Lawrence said, most of the cheap Term Life companies (Banner, MetLife, Prudential, Principal, American General, etc.) include an extended conversion period in their term policies at no additional cost. So one thing you could consider is having your agent compare the current policy you're evaluating, with one of those cheaper Term Life carriers (assuming he/she hasn't already). There's a common misconception that Term policies just vanish after the term period is over, but that's not the case. The term period (10, 15, 20, 30, etc.) is simply the period of time during which the premium is guaranteed to remain level. Most Term life policies become annually renewable after the guaranteed level premium period and can therefore be maintained beyond the term period even without a conversion option. It'll likely be pretty expensive but is certainly still an option.


        • #5
          Thanks for the info!



          • #6
            It's usually free. I wouldn't pay anything extra for it for two reasons.

            First, you'll probably never want permanent life insurance.

            Second, even if you do, what are the odds that that policy is right for you? Not very high.

            But if they're throwing it in free of charge, sure, why not? It's not hurting anything.
            Helping those who wear the white coat get a fair shake on Wall Street since 2011