What is a Conversion Option on Term Life Insurance?

Term life insurance is a useful option for providing protection to your dependents, in the case of death of the main family member. A term insurance policy will last only for a certain period, based on the duration which has been agreed upon in the contract. In case the person outlives the period of the term insurance, the policy will be considered to be void, and the coverage will have lapsed. Of course, it may not be in the best interest of the policyholder to let it lapse, and they may consider exercising the conversion option for term insurance that may exist on the policy.

Usually, the conversion option for term insurance comes free with the policy. A convertible term life insurance may be triggered at the end of the tenure. Of course, the condition is that the rules of the policy have not been violated in any manner, and the premiums have been paid regularly. Usually, if the person seeks to opt for conversion into a full time life insurance policy, and the earlier conditions have been met, they will not need to undergo any additional screenings or further medical tests. The policy will usually have a clause that allows the policy for a predetermined number of years. In some cases, there may be the option of a partial term conversion: a specific portion of the term policy shall be taken and it shall be converted into a permanent life policy. What this practically does is that two separate policies are being created. The primary motivation behind opting for a partial term conversion would be that the policyholder is unable to, or unwilling to make the premium payments for the conversion to a full policy.

Reasons for Exercising the Conversion Option for Term Insurance

The policyholder needs to think about their original motivation for going for term life insurance as compared to a full-fledged life policy. Some of the circumstances that would justify the insured making the switch are as follows:

• Improvement in the budget: The policyholder might have been in two minds about opting for a term insurance policy right from the beginning. In case their original reason for going with term was a constraint in budget. In case the savings have accumulated to an adequate level, or earnings have been generated from newer sources, it would make sense to grab the opportunity to switch to a full time life insurance policy.
• Cash Value Asset: Policyholders tend to opt for a life insurance policy since part of the payment made in the form of premiums goes into building cash value. This can be a part of one’s retirement strategy regarding their potential financial sources.
• Taking responsibility for one’s own funeral or other expenses: The insured might not have a family of their own, or they may be distant from their relatives. Alternatively, based on the relations that they have with family, they may not wish to burden them with the costs of their funeral and other expenses on death. If they wish to depart with dignity, conversion to life will take care of the matter. 
• Legacy Needs: When approaching your final days, a person is likely to think about the legacy that they are leaving behind for their offspring and immediate family. In case they do not want to leave behind expense related worries for their offspring, making the conversion into full time life insurance is the best way going forward.

Process of conversion for Term Insurance

In order to convert your term insurance into a full-fledged life insurance policy, you may follow these steps:

• Consult executives from the insurance company about what options are available to permanent life insurance and the cost of conversion that is applicable.
• Fill the life insurance conversion application form.
• Select the amount of life insurance that you are willing to opt for.
• Assign the nominees in the policy document.
• Provide specifications 

Conclusion

If your conversion expiration date is approaching and you want to be insured for a longer period of time, you have two options: convert to a permanent policy or buy a new term policy. By converting the existing term life insurance policy, you will probably need to pay greater premiums, as compared to the earlier term insurance policy premiums. Full time life insurance is more expensive because the conditions for a payout are higher. However, if the situation has changed, then the insured may reconsider their objectives for conversion.