Life Insurance and the Conversion Option

When it comes to term life insurance, are you up to date on the conversion option?

Consumers who turn to LifeInsuranceQuotes.com for their life insurance needs get both affordable and quality quotes. They also, however, avail themselves to a large amount of educational material regarding life insurance and how the product can best serve them and their loved ones.

With conversion provisions, these generally permit level term (LT) insureds to “convert” a new permanent life policy within a specified period of policy years. The new permanent policy is priced for the client’s “attained” (present) age; however the insured does not have to provide new evidence of insurability.

According to a large number of agents, the challenging economy is leading them to sell more level term policies than permanent. The reasoning there is due to the fact the LT cost is much smaller than that for the permanent plans (like whole life and universal life with secondary guarantees) that would better fit the client’s situation.

Agents also point out that they want the level term policies for such clients to have “good” conversion options. The reasoning here is that when the client’s finances are more stabilized, the individual can convert a number or all of the policies into a permanent plan minus new underwriting.

One issue that has arose is that conversion options have proven lately to be more restrictive than a decade ago, so locating those “good” conversion options is not always that easy.

Agents have also noted dealing with an issue that takes place at the end of the conversion period, not at the start.

As it turns out, many insurance companies have ceased sending out timely notices to policyholders and their advisors indicating that the conversion option will soon cease, according to one agency head.

Another industry expert points out, “In the mid- to late-1990s, we’d see those notices all the time. Now, agents don’t get the notices – not even at the end of, say, a 10-year term when the level premium guarantee period ends.”

The majority of companies do not even bothering sending notices to policy owners. In the event they do, “they often arrive too late” to do anything about them.

A typical scenario is that the client acquires a letter from the insurer claiming that the conversion period will terminate within a month. In many cases, the client does not understand and simply puts the letter to the side. Shortly prior to the expiration date, the client remembers the letter, contacting the agent to learn more. Unfortunately, the time period is oftentimes too short to get everything properly completed.

While clients can always maintain their level term policy, once the period ends after a decade or more, the premiums begin to increase every year based on annually higher term rates.

When shopping for life insurance, do your research and understand everything before signing your name to the dotted line.