Term Life Insurance Product and Conversion Information
Term life insurance is temporary. You pay for a death benefit for a set number of years. After the term is up, the policy terminates. The only way to keep your policy is to renew it or to convert it to a permanent life insurance policy. Conversion may be done one of several ways.
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Term Insurance
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Term life insurance policies renew after they mature. The policy's maturity is determined by the type of policy you own. An annual renewable policy renews every year. A level term policy may go on for five years or up to 30 years. Insurance companies that allow conversions generally do not require additional health exams for converting to a permanent policy, though, this depends entirely on the insurer.
Straight Conversion
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A straight conversion is when you convert all of your death benefit to a permanent policy on a $1 for $1 basis. For example, $100,000 of term life death benefit is converted to $100,000 of permanent life insurance death benefit. The cost for the death benefit stays the same, but the premium increases dramatically since the insurer must build a cash reserve for the permanent policy. This cash reserve must be set aside to pay for the future death benefit of the policy.
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Partial Conversion
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Partial conversion means you only convert part of the death benefit to a permanent policy. You'll end up with a lower term death benefit and higher premiums for the permanent portion you converted to. This option allows you to convert your term to permanent coverage over time if you cannot afford a full conversion all at once.
Reduced Paid-up Conversion
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A reduced paid-up conversion does not change the premium you pay for coverage. Instead, part of the premium you paid on the term policy is credited to a permanent policy and the death benefit of the term policy is reduced so that no increase in premiums is necessary. The entire term death benefit is converted with this option.
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