When choosing life insurance, you'll often choose between the most common and temporary option, known as term, or the permanent ones, such as whole and universal. However, you can have the best of both worlds with a convertible term policy, which can convert a term insurance plan into a permanent one, all without going through the underwriting process again.

Sure, the upgrade comes with a price, but experts say it's well worth it. In this article, you'll learn why paying the higher premium is a smart move that you'll be grateful for as you age.

Why Should I Get a Term Insurance Plan?

When reviewing the cost of term policies, term life insurance is the cheapest option, and it can last from 10 to 30 years. Even a basic term policy with no riders adds to your family's financial security upon your death. The insurance check they'll get can cover your funeral services, mortgage payments, education needs, and not put them in debt.

While you can enjoy high coverage amounts, term policy advantages include doing so at a cheaper premium compared to permanent options. Your beneficiaries will get a tax-free lump sum as long as your death occurs before the term ends. Be aware of behavior that can void it, such as lying on the application.

However, if your term insurance lapses, your beneficiaries won't get a payout. That's why you should explore policy options with a convertible plan.

What Are Convertible Term Policy Benefits?

Maybe you can't afford a more expensive permanent plan that has more benefits at the moment. However, if you feel your financial or family planning situation may change in the future, a convertible insurance option gives you the safety net to make the change as long as you do so within the conversion window. From avoiding an underwriting medical exam to keeping a lower premium, there are several reasons why it's worth the extra cost.

Easy Switch to Permanent Plan

Once you decide to go permanent on a convertible plan, all you need to do is contact your insurance firm to make the switch. Don't sweat about going through another medical exam, as you would if you were to cancel a regular term policy and apply for a completely separate permanent one.

Therefore, you can enjoy the premium rating that comes with youth and good health even if you get sick later. Once you switch to a permanent policy, enjoy coverage for your entire life as long as you make the premium payments.

Keep Original Premium Price

This option may be at the top of your advisor's insurance recommendations due to your current financial situation. After all, a convertible insurance policy is ideal for someone who can only afford the cheaper temporary term one for now, but aims to have a permanent one later.

If you think you'll be able to afford the permanent policy later, the convertible one is worth the extra money. Then, you won't have to risk a change in health status that may significantly increase your premium or cause outright denial later.

Remember, your premium gets higher with age, and the underwriting process also considers your:

  • Gender
  • Overall health status
  • Lifestyle habits (like smoking)
  • Risky behaviors (like skydiving or other extreme sports)

Once you get a policy with a good price on your initial convertible term insurance underwriting assessment, you won't have to risk a much higher percentage premium later on. Depending on when you apply for a permanent plan, your premium could go up hundreds of dollars, with a possible four-figure premium quote, particularly once you're over the age of 50.

Cash Value

Once you're in permanent status, your insurance will build cash value, which you, the policyholder, can access during your lifetime. Either borrow against it, make a partial withdrawal, or cash it all out. This value depends on how much premiums you've already paid, the lifespan of the policy, and the size of the death benefit.

Frequently Asked Questions

How Much Is a $500,000 Life Insurance Policy for a 50-Year-Old Man?

According to Ethos, a half-million-dollar life insurance plan can cost a 50-year-old policyholder $221 to $1,146. Why the gap? Because a 30-year term policy (i.e, the one with the $221 premium) is the cheaper option that ends in 30 years, unless you convert it, of course.

However, a whole life policy that comes with an investment portion allowing you to cash out/borrow against it has a more expensive premium ($1,146). That price is much lower for a 30-year-old female, who would pay $50 for the 30-year term policy or $399 for the whole life one.

Does Life Insurance Send You a Check?

When life insurance pays out to your beneficiaries, they'll often receive a check in the mail or a personally delivered one by the firm representative. However, they also have the option of accepting the payout in the form of an annuity (a specific annual payment) or accessing a retained asset account that the insurance company maintains.

Can I Cancel Term Life Insurance and Get Money Back?

Sorry, but term insurance is not the type that allows a cash-out payment or a refund. The only time a refund is possible is from cancellation within the initial 30-day "free look" period or if you've added a rider called the Return of Premium (ROP). However, this rider requires you to meet specific conditions, such as outliving the term's policy period.

If you let your time insurance expire without converting it, you simply no longer have life insurance until you get a new plan. However, if you have permanent insurance, such as whole or universal, you can opt to end those policies and cash out for the existing cash value after paying a surrender fee.

Consider Flexible Life Insurance for Greater Protection

A convertible term policy may be the ideal insurance solution if you anticipate your financial situation changing in the future. Starting out with a low premium can provide the cushion to eventually afford a larger one for a permanent plan. From there, you'll have lifelong insurance protection with an investment portion you can enjoy while alive.

Do you want more advice on choosing the right insurance for your household? Search our site for other related informative posts.

This article was prepared by an independent contributor and helps us continue to deliver quality news and information.

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