What is a convertible insurance policy?
Convertible insurance policy is a type of policy that allows policy holders to switch a term policy to a permanent policy in a later time. It’s a policy that gives flexibility to term policy holders and don’t have to worry too much about changing plans in a later time.
Assuming a policy holder does not have enough money to purchase permanent insurance coverage, he/she can buy a term policy cover then use the convertible plan to get a permanent policy coverage.
According to Investopedia, a convertible insurance policy is usually related to life insurance, and to understand convertible policy better, you must first understand term and universal policies. So;
What is Term Insurance Policy?
A Term life insurance policy is an insurance policy that provides the insured person coverage for a certain period of time. The policy no longer provides a death benefit after the end of term insurance policy.
What is Universal Insurance Policy?
A whole or universal policy is considered as flexible permanent life insurance policy; it provides the insured person a coverage for a life time at low cost. its provide more flexibility than whole life insurance. Universal life insurance allows users or the policyholder to use the interest from his/her accumulated savings to help pay premiums over time. Universal life insurance policy are broken down by the insurance company into two sub categories, they are
- Saving component known as the cash value
- Cost of insurance and.
The cost of insurance must be covered in other to keep the policy active but premiums may be shifted over time based on the policyholder’s needs.
A convertible term insurance policy allows the insured to covert a term policy to a permanent policy at a later date whenever he/she wants. This is possible provided that the conditions of the policy have been kept and payments are made on time, the insured person is however; not required to undergo any new or additional screening at the time the policy is to be converted, regardless of his/her health of medical condition. Convertible insurance policy provides the benefit of getting less expensive term life insurance now while you as the insured maintains the option of either stay or convert to a permanent policy at a later date as insurance needs and financial resources change.
The permanent policy will have the same value as the term policy, if the policyholder decides to make the conversion but the permanent policy will have higher premiums.
Advantages of Convertible Insurance Policy
- policyholder doesn’t have to go through the medical underwriting process again to switch the policy from term to permanent.
- Your health changes.
- The policyholder only needs to pay his/her insurance premiums when the time is due to retain the option of converting the policy from term to permanent.
- Your financial circumstances improve.
- Your life insurance needs change.