Comprehensive Guide to Understanding Life Insurance Conversions

So what is life insurance conversion?

Typically, a simple term life insurance policy works for most people. This is something you will read time and time again in the Huntley Wealth blog.

It’s my sincere belief that if you take the difference between what you would pay for a term policy vs a whole life policy and invest it you will have stronger returns.

1. Risk Related Conversions
2. Term Expiration
3. Conversion Factors
4. Conversion Credits
5. Hybrid/Universal Conversions
6. Cost
7. Replacement
8. Two Samples

Life Insurance Conversion & Health Conditions

That being said, there are times when life circumstances change. Luckily many term policies provide a life insurance conversion option that enables you to upgrade your policy from term to permanent, under the original health rating should the need arise.

For example, let’s say you’re 65 years old and purchased a term life insurance policy 10 years ago. At the time of policy issue, you were in excellent health and rated at “Preferred Non Tobacco.”

But in the past 10 years, you’ve developed sleep apnea and were diagnosed with diabetes.  It would be difficult to secure a Preferred offer today.

Here’s where the life insurance conversion benefit kicks in.  You can convert to a permanent policy at the “Preferred Non Tobacco” rating, WITHOUT evidence of insurability.  So you’ll pay what any other 65 year old in excellent health would for the same policy.

Sounds pretty good to me!

RELATED: 5 Critical Tips You Must Know Before Buying Life Insurance

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What Happens When a Level Term Expires?

To fully understand life insurance conversion options, you must know what two options are available to you when the level term period expires on your policy.

Option 1: Pay an annual renewable rate, which means your premium is no longer fixed but rather increases year after year.  Going into your purchase of a 10 – 30-year term policy, no one knows what the cost will ultimately be when you renew. You have a contractual guaranteed annual renewable premium figure in the initial contract, but the rate shown there is a worst-case scenario. It’s very likely the renewal premium won’t be that high. (For more information, read our “Annual Renewable Term Life Insurance“).

Option 2: Convert the policy to a permanent policy, whether it be whole life or universal life. These premiums are also unknown since you can’t be sure what permanent products will be available when you convert 10, 15, or 30 years down the line.

Variable Factors For Life Insurance Conversion Features

So let’s say you’ve found a policy that offers a life insurance conversion option. Now you need to nail down the details of what options are really offered. Each policy carries its own conversion limitations.

Maximum Age

Policies provide age limits in regard to when you can exercise your life insurance conversion option.

For example, a Banner OP Term 15 policy can be converted to a permanent product until the insured reaches 70.

Minnesota Life’s Advantage Elite Term 15 carries a maximum conversion age of 75.

If you purchase a term life policy, and there’s a possibility you may one day need permanent coverage, be sure to look at the maximum age. The older the better.

RELATED: Check Sample Life Insurance Rates by Age (No Personal Info Required)

Availability and Choice of Permanent Policies

Buyer beware:

• Some policies allow conversion to ANY permanent policy
• Some policies allow conversion to a permanent policy of the carrier’s choosing

For example, Ohio National has two types of term – regular or plus:

1. 15 Year Term – converts to policy of carrier’s choice
2. 15 Year Term PLUS – converts to ANY permanent policy

This option is probably the most important conversion feature.  If your term policy allows you to convert to ANY permanent policy, this is a fantastic benefit!

In most cases, you will have a choice between converting to a low premium, guaranteed universal life plan, or a higher premium, cash accumulation plan.

If you aren’t given a choice, you can guess which policy the company will likely allow you to convert to…

…the highest priced option of course!

If you’re shopping for insurance, be sure to ask your agent what the conversion privileges are.

Ideally, you want a product that is convertible to “any permanent policy without evidence of insurability.” Other options that may be offered are conversion to “select permanent policies” or conversion to a “permanent policy selected by XYZ insurance company.”

Conversion Credits

Some term policies carry life insurance conversion credit, which reduces the premium payments on the new Permanent Policy by some degree.

For example, Prudential‘s Essential Term policies don’t offer credits. That being said, Prudential Elite Term policies do offer credits, which reduce the first year of premiums for the new policy by the amount of the old term premium.

All Term policies we sell have some sort of conversion feature. Again, I will reiterate that all term policies WE SELL have this feature.

That doesn’t mean all term policies out there offer conversion privileges. Primerica life insurance is one such company.  Since they don’t offer permanent products, a conversion option wouldn’t be necessary. (For more information, read our “Primerica life insurance review“).

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What about Hybrid Term/Universal Life Policy Conversion?

In a sense, these policies automatically “convert” to a permanent product.  However, you need to be careful when you classify hybrid term-UL products as term policies.

These are not actually true term policies. They are built on a universal life policy foundation and add a no-lapse feature for a number of years, which makes the policy act like a term policy for the duration of the no-lapse guarantee.

At the end of the initial no lapse period, these policies don’t technically “convert,” per se.  Instead, they simply revert to the UL function once the no-lapse feature expires.

At this point, your premiums increase and the policy functions like any other universal life policy.

At the time of writing this article, the two main players in the term/UL hybrid arena are Genworth and Transamerica, with their TransTerm UL.

*Since this article has been updated Genworth has stopped selling life insurance. If you have a Genworth product, check out our article for some information about what you could do: What Should I Do With My Genworth Policy? 

How Much Does it Cost to Convert a Policy

This really depends on what type of permanent policy your insurance company allows you convert to, as explained above.  If they let you convert to their lowest cost, guaranteed universal life insurance policy, the premium may only increase 2 – 3 times the premium you are currently paying. Depending on your age this may be more.

If you’re already having trouble affording your premiums, life insurance conversion is not the answer. It always costs more to convert than to stay with your current policy.

Replacing Your Term Policy

There are many instances when replacing your existing term policy makes more sense than converting it to a permanent policy.  Be sure to get quotes from a different carrier and then compare those quotes to your conversion illustration.

If you need a term life insurance policy with strong conversion privileges or have any questions about life insurance conversion, please call us at 888-603-2876 we can help!

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ING vs. Met Life’s Life Insurance Conversion Options

I recently had a client ask me about which term product has better conversion options: Met Life or Voya?

*Voya’s Term Products:

1. TermSmart
2. TermSmart NY
3. ROP Endowment Term
4. ROP Endowment Term NY

MetLife’s Term Products:

1. Simplified Issue Term Life
2. Level Term Life Insurance
3. One Year Term Life Insurance

MetLife and Voya’s term policies are convertible, offering conversion at no additional charge.

*Update 12/18/18 – Voya is no longer selling life insurance in the U.S. but the comparison below still shows how companies’ conversion options differ.

What Type of Permanent Policy Can You Convert To?

Most of Metlife’s products allow you to convert to “any currently available” permanent policy.

Voya allows you to convert “to select cash value policies”.

It is impossible to say with certainty which company will have the lower priced conversion options 10 – 20 years down the road because no one knows for sure which permanent products will be available at that time.

That being said, I can attest that based on today’s current pricing, Voya’s premiums are lower for all three of the most likely conversion periods (10, 15, or 20 years from today with a $10 Million face value).

The bottom line is, Voya may provide you with preferential premiums if they continue with their current pricing but it really isn’t possible to pick a clear favorite when it comes to life insurance conversion options.

Huntley Wealth & What We Can Do

My name is Chris Huntley and I am the founder and president of Huntley Wealth & Insurance Services. I’ve been an independent life insurance agent living in San Diego since 2004.

I specialize in serving high-risk clients and like to think I’ve built Huntley Wealth from the ground upon a foundation of superior care.

My passion is helping individuals, like yourself, to find the most affordable coverage possible while meeting their personal needs.

Are you thinking about purchasing life insurance or are you thinking about converting your term policy to permanent? If so, Huntley Wealth can help you review your options.

We have access to over 40 life insurers and will work tirelessly to get you the best rating and the lowest possible premiums. Our agents work for YOU, NOT the life insurance companies.

Call Huntley Wealth right now at 888-603-2876 if you need affordable term insurance, we can help! 

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