Convertible term life insurance lets your policy grow with you

If you’re shopping for a life insurance policy, but expect that your and your loved ones’ financial needs will change over time, consider convertible term life insurance for cost-effective rates and maximum flexibility.

What is convertible term life insurance?

Convertible term life insurance is a hybrid of term and permanent life insurance. Term life insurance covers you for a specific period of time. You pay the premiums and, if you die within that time frame, your beneficiaries get the money. Permanent life insurance, a more expensive option, covers you your whole life and allows you to accumulate savings tax-free.

With convertible term life insurance, you can initially purchase a term policy and then convert it to a permanent policy years down the road. As with all life insurance policies, convertible term life insurance premiums are based on age, according to the Insurance Information Institute.

Who should get convertible term life insurance?

This type of life insurance is particularly well suited for people under 40 who have young children. That way, you can pay lower premiums for term life insurance while your children are young — and be assured that they’ll be taken care of if you die. Once they are financially independent, you then can convert to permanent life insurance and accrue savings for retirement and other goals.

Do I need to take a medical exam?

When you first enroll, there’s a good chance that you’ll have to take a medical exam to determine whether you qualify for the lowest rates. But when you decide to change from term to permanent life insurance, you can bypass the medical examination and convert your existing policy without risking a much higher premium due to medical changes.

You also can keep the same value of coverage. For example, you can transfer a $100,000 convertible term life insurance policy into a permanent cash-value policy of equal value, without disclosing any information about your current medical state, according to the Texas Department of Insurance.

This feature is important if your health declines, whether from illness or aging. The conversion process is relatively simple as well, according to Western and Southern Life, which offers convertible term life policies. Simply convert your term insurance coverage to an appropriate whole life policy at the end of your benefit period.

Are there any restrictions?

Generally, anyone age 16 to 74 is eligible to apply for a convertible term life insurance policy. Minimum policy amounts vary — at Start Farm, they start at $50,000.

However, age is an important factor in convertible term life insurance. Most insurance companies require a term policy to be converted before the insured reaches a certain age, but that varies significantly by company. State Farm, for example, allows insured individuals to convert until age 75. Others, including Western and Southern Life, won’t allow conversion after age 65. Also, keep in mind that the longer you wait to convert a policy, the higher your permanent policy premium will be, according to Nationwide.