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Convertible Term Life

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  • Convertible Term Life

    I was wondering what people's thoughts on convertible term life insurance, specifically from Northwestern. It is initially term with the option to convert it to whole life. The reason that I'm considering it is the Disability Waiver clause that reads, "If premiums are being waived during Term conversion period, Policyowner may convert to 90 Life or lower premium permanent plans. Premiums are waived on that policy while insured remains disabled." I am capped at my disability insurance and fairly early in my career. If I were to become disabled, we would be ok on the disability plan, but we have very little retirement currently. This policy was explained to me as being additional insurance so that if I were disabled, I could convert it to a whole life and the company would pay the whole life premiums. This whole life would then provide some additional retirement savings. The cost of this term insurance is only about two hundred more a year than traditional term. I would still of course maximize all retirement plans along the way and this money would likely have been put into a brokerage account with some mutual fund otherwise. I wouldn't plan on converting this to whole life, but I imagine that is the goal of the company and advisor.

    What are people's thoughts? Thank you.

  • #2
    I would take a pass. The Waiver of Premium Rider has a 6 month waiting period and an "Own-Occupation" definition of total disability for the next 1.5 years (a total of two years in your occupation). After that, you must be unable to perform any job based upon your education, training and experience.

    If you convert your term to Whole Life and then subsequently no longer meet the definition of total disability under the Waiver of Premium Rider, you must continue to make the premium payments.

    Are you at the point that you have 65% of your income insured? If not, you are not "capped" on your disability insurance.
    Lawrence B. Keller, CFP, CLU, ChFC, RHU, LUTCF


    • #3
      I'm still looking for a product NML offers that I like.

      Since I don't like whole life much, I don't put a lot of value on converting a policy to whole life.

      I say this as a prior owner of a policy similar to the one you are discussing.

      I guess it's cool that they'll pay the whole life premiums, but you're just buying insurance that you don't need, and I think you ought to self-insure stuff like that. If you need disability insurance, buy disability insurance, not some weird convertible term life policy that has similar functions.
      Helping those who wear the white coat get a fair shake on Wall Street since 2011


      • #4
        Thank you Larry... I worked with you on my disability last year, so I should be capped. My salary will bump up soon although I won't have an exact figure as it's now a percent of partner salary. At what point can I increase my disability? Do I need to wait until after a year of the new income or can I do it before then (like after six months when I've received two distributions and can estimate my new yearly salary). I may contact you over the next week or two if I am still considering this policy.

        WCI, thanks for the response. I do plan on self-insuring, but I have very little retirement savings currently. If I were to become disabled over the next say 5 years, I would still have little retirement and then would have to save a chunk of my monthly disability to live off of after 65 or whenever the disability insurance lapses. Obviously, there is very little risk of this, but I figured I would consider this as a further way to reduce risk. I would need to see what the potential cash value of this plan would be if I were to say become disabled in 3-5 years and then stay disabled until 65. I again have no intention of converting the policy except if I were disabled. I also think that having the extra term insurance makes sense for me, so the cost would really be ~200/ year.




        • #5
          [Post deleted at author's request.]