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Lancaster PA

Everyone Should Have a Convertible

By June 23, 2011February 26th, 2019No Comments

Can you image a world where everyone owned a convertible car? I think it would be a nightmare for my family. My kids would be throwing things out of the car all the time, I would constantly worry about it raining and I would have to buy a lot more suntan lotion! However, you probably already guessed this blog post is not really about convertible cars. I am actually talking about convertibility relative to term life insurance.

In a prior post we discussed, how term (temporary) life insurance is a good deal for young families because it is extremely affordable and it protects your family until you become financially independent. However, since term life insurance generally only last 10, 15, 20 or 30 years it is extremely important to make sure your term life insurance has a convertibility option.

When term insurance has a “convertibility option” it simply means that you can take all or a portion of the term life insurance benefit and convert it to permanent life insurance at the original health rating. That was a mouthful of an explanation so let’s look at an example.

At age 25 you took out a $250,000 term life insurance policy that lasts 20 years and you locked in a “preferred” rating because you were in good health. Then at age 44 you realize you still need life insurance because you bought a bigger home with a bigger mortgage and you will still have kids around for another 5 years. However, your term policy is going to expire within a year and your health is nowhere what it was at age 25. What are your options?

Option 1 – Gamble

If you have a legitimate need for life insurance I don’t think gambling that something will not happen is a good option for you or your family. That being said, it is an option.

Option 2 – Buy Another Term Policy

This may be a good option if you are in good health but since you have had a few medical issues a term policy would be extremely expensive if they would even offer you a policy at all.

Option 3 – Convert

If you bought a convertible term life insurance policy and the term has not expired yet, you can “convert” all or part of the $250,000 to permanent life insurance that lasts up to age 121. The best part is the price for the new converted insurance is based on your “preferred” health rating that you locked in at age 25. Even if you had been diagnosed with cancer you still are guaranteed the “preferred” health rating from age 25 on the new policy.

As you can imagine unexpected event(s) occur in everyone’s life and the need for life insurance can change over a 10, 15, 20 or 30 year term. The convertibility option gives you the flexibility to make your life policy last longer and lock in a health rating no matter what medical condition develops. When shopping term life insurance make sure to ask if the term quote has a convertibility option and how that option works. It is normally very inexpensive or automatically included on most term life policies and having the convertibility option can literally change you and your family’s life.

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