October 20th, 2011 | Author: Mitch Reynolds

Term to Permanent Life Insurance Conversions

A contractual right of term life insurance policies in Canada

If you current own a term life insurance policy (like so many of us Canadians do) you have a feature built into your policy called term to permanent life insurance conversions option. This option allows you to convert the term policy into a permanent life insurance policy before a certain age. Most life insurance companies in Canada have a cut-off age between 65 and 75 for your term conversion. If you are older than your term life insurance policy allows, then you have missed this conversion window. Most people haven’t and are still young enough to look at this option.

Why convert term life insurance into permanent coverage?

When you originally purchased your term life insurance you were most probably looking for a large amount of life insurance protection for a low cost. This is great as you were able to protect your growing family from the loss of your income, pay off the house and have money to send children to post-secondary education for a very affordable premium. As time marches on debts are paid off, children grow up and your savings increase, so there is less and less need for a large term life insurance contract. Does that mean you don’t need any life insurance? No! Your needs change from pure risk protection to estate planning as you age. This is where term to permanent life insurance conversions can be very helpful.

How does the conversion option work?

The first and most important feature of term to permanent life insurance conversions is that there is NO MEDICAL EVIDENCE required to get your permanent life insurance policy. Getting any life insurance policy means going through an extensive underwriting process where your health is checked to make sure you are a good candidate for life insurance coverage. Life insurance companies are in the business of insuring people who are a standard or good risk (a good bet they won’t die any time soon). If you are a bad risk (have health issues that statistically shorten your life expectancy) you can either be rated, as in pay more for the coverage, of you are declined. The term to permanent conversion option means the life insurance company cannot rate you or decline your coverage at the time. You are guaranteed to get your permanent life insurance policy.

At the time you convert, it is like starting a permanent life insurance policy at your age in the future. Your health status has been frozen in time with the original term life insurance policy. Even things like smoking status were locked in. For example, if you were an on-again, off-again smoker and got your term life insurance when you were off cigarettes, you probably have non-smoker rates. At the time of conversion, even if you took up smoking again, you still get the non-smoking rates on your permanent life insurance policy. Obviously, the earlier you make the conversion the cheaper the premiums as it is based on age, and every year you get older life insurance premiums go up.

Your conversion options will be any permanent life insurance contract your insurance company is offering at the time of conversion. For example, if you are with Manulife Financial you can convert to any Universal Life, Whole Life or Term 100 life insurance policy that Manulife has on the shelf at the time.

Another important factor is that you don’t have to convert all your term life insurance into a permanent policy. You can peel off a smaller amount and convert that into permanent coverage. You could even convert different amounts of your term life insurance into different permanent life insurance options your life insurance company has available. For instance $100,000 converted to whole life insurance and another $250,000 to Term 100. You can make different conversions at different times as your need for permanent life insurance might increase over time. The only thing you can’t do is get more permanent life insurance than your original term life insurance policy had coverage for. If you have $500,000 of term life insurance, the maximum amount of permanent life insurance you can get via the conversion option is $500,000 – no more.

What happens to my remaining term life insurance?

If you decide to convert only a portion of your term life insurance into permanent coverage you have the option to keep the remaining term life insurance in force. What will happen is your monthly or annual premium for the term life insurance will go down, since you have a smaller policy after converting part of it to permanent coverage. The length of the term will not change. So, if you were 15 years into a Term 20 life insurance policy, the remaining term life insurance will still renew in 5 years time, at the end of the 20 years.

You also have the option to cancel the remaining term life insurance after you make the conversion. If you no longer need as much life insurance as before and only exercise a partial conversion you can have the remaining term life insurance automatically cancel and no further premiums are due on the term policy.

Find out more about your term to permanent life insurance conversions today

If you have a term life insurance policy currently and are interested in finding out more about converting into permanent life insurance, we can help. Please contact Life Guard Insurance to speak with a licensed life insurance broker in your area about term to permanent life insurance conversions.

The article was written by +Mitch Reynolds. If you found this article interesting or it made you think, please feel free to share your comments below. Liking us on Facebook, giving us a +1 on Google or Tweeting this article about term to permanent life insurance conversions would be very much appreciated.