Should I Convert my Term Life Insurance Policy?

May 31, 2017
For most Canadian families, term life insurance offers sufficient protection at an affordable rate; and it expires when they no longer need it. However, many people still wonder if they should convert their term policy.

In a word, YES. Everyone should have at least a minimum amount of permanent life insurance.

Most term policies offer you the opportunity to convert to a permanent policy without having to go through a medical examination; if it is done within a certain time or before a certain age range.

Why Should I Convert my Term Policy?

As I mentioned, term insurance coverage ends after a set time (temporary insurance), which differs from permanent insurance, which pays out a death benefit whenever you die (it is permanent and lasts your whole life).

As well, permanent insurance builds up a “cash value” component that can be used while you’re still alive to supplement your retirement of any other way you need.

Below are examples of the main benefits of, and best times to look into, converting your term policy.

It’s Easy – No Medical Underwriting

When you convert your policy, you don’t have to go through any medical examinations to prove your insurability…conversion is an administrative change only.

Insurance companies will base your new premiums on your current age; or in some cases a policy can be back dated to conserve or ‘save’ a lower age. If you convert your policy back to conserve a lower age, you’ll also back pay the premiums to the start date – this will reduce the time until the policy is ‘paid up’ on a limited pay contract and lock in dividend credits. The best news is that you won’t have to prove your insurability (no medical exams or questions) at the time of conversion.

When a Permanent Insurance Policy is More Appropriate Than Term Insurance

Sometimes a permanent insurance policy is better than term so it’s a good idea to convert, for example:

  • When your finances improve – permanent life insurance can play a role in the conservative component of a balanced portfolio. There are excellent guarantees in most whole life contracts with very little downside and big upside.
  • If your health changes – life insurance is most affordable when you’re young and healthy. If you develop a health condition after buying your term insurance and are now worried that it’s not enough, you can convert your policy without a medical examination.
  • Your insurance needs change – If you started your own business, a permanent insurance policy can ensure that your family or business partners will have enough funds to continue operating.
  • Estate & succession planning – the most efficient way to pass money tied up in a holding company from one generation to the next is using permanent life insurance.

Conversion Clauses

Many term life insurance products include a conversion clause so you can convert your insurance to a permanent policy. However, some don’t, so it’s always important to get some professional help. If your term policy is convertible, there will be important dates related to conversion.

If you’ve decided to convert your policy, contact us to help… you will not have to try and find the original agent that you sued to get the policy. At Shelter Bay Financial Corp., we are brokers and have contracts with most Canadian insurers…we can help you plan and decide if you should convert all or part of your term policy. We will make the conversion process easy to understand and complete.

To learn more, call us at 1.888.498.5288.

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