As we move through our adult life, it is typical to accumulate significant debt through purchases of a home, vehicles, starting a family, opening a business, or investing for retirement. In our younger years, when a lot of coverage is necessary, the most affordable type of life insurance is Term insurance. We do, however, reach a point in our life when permanent life insurance makes more sense, and the last thing you want to do is cancel your Term policy and then look for a great deal on permanent insurance like Whole Life or Universal Life.
Term insurance, like other life insurance, is based on several factors that will affect what the final annual premium may be:
- Health history
- Driving Record
- Record of prescription drugs
For younger adults, term insurance is very inexpensive, and the rate can generally be guaranteed for up to thirty years. After the policy expires, most insurers will offer an annually renewable policy based on the age at renewal and each renewal thereafter. If you remain healthy at renewal age, you may be able to purchase another affordable Term policy with a 10 or 20-year term rather than accepting the annually renewable term offer. However, if you are like most adults and have put your occupation before your health and, as a result, may have developed some health issues, you may be better off converting your term policy to a permanent policy that you cannot outlive.
The conversion rider is probably the most important feature of many Term policies. This rider guarantees the policyholder the right to convert their in-force term policy to a permanent policy offered by the insurer without having to prove insurability. Although most insurers set specific time limits for conversion, you can elect to convert all or a portion of the policy during the stated conversion period. This allows you to continue with a portion of the term policy after you have converted a portion to a permanent policy that can help reduce the sticker shock for the new attained age rating. For example, the policyholder can convert half the face amount of the term policy at one point in their life and then the balance at a later point in their life. The policyholder does not have to convert all of the term insurance and may not wish to since it’s probable that they require less insurance in the later years of their life.
Selecting the Right Company
Insisting on a conversion rider is a great idea, but only if you are purchasing from a small company that may or may not have a permanent product available when you need it. Even though the company might charge an additional premium for the term rider, they do not have to guarantee a permanent product will be available when you want it. For this reason, it is always best to purchase the Term insurance with the conversion rider from a large company that has been offering permanent products for many years and depended on them as part of their portfolio.
It’s no secret that insurance purchases are driven by life events during our lifetime that we, in most cases, cannot foresee. Because of this, it makes very good sense to purchase as much insurance as you can afford when you are young, and the rates are more affordable, and always insist on a conversion rider so that you can convert your insurance to permanent coverage later in life without having to worry about your health history.