I’ve often talked about the conversion option being the gold nugget hidden in term life insurance policies. Simply put the option allows you to convert all or part of your policy to permanent coverage without evidence of insurability.

I’ve also often talked about the fact that close to all life insurance needs are term insurance needs, not permanent. But what happens when you need your life insurance for a longer period than you expected? Usually the least expensive answer to that is to buy another term policy, but what if at that point, due to serious health issues, you can’t get approved for a new term policy? Your only option may be conversion.

I have a client that I have been working with for a couple of years now, a prostate cancer survivor. We applied two years ago and thought we were in a good position to get a new term policy approved, a policy he needed for a business buy/sell plan, but on the application exam his PSA was elevated again. He had undergone a radical prostatectomy and his PSA had been and should have been a statistical zero.

When our labs showed that his PSA was making a comeback, usually an indication in the absence of a prostate that some cancer had been missed, his oncologist recommended radiation therapy. Because of the original grade, a Gleason 7 and original stage 3 combined with the recurrence he was declined and we couldn’t find any other carriers that were willing to entertain a possible approval. At that point I suggested he consider a conversion of a term life insurance policy that he had that was approved back in 2000, pre prostate cancer, at preferred plus rates. He talked his partner into waiting to see if the radiation worked and what kind of offers he could get then.

It took most of the next two years to get his PSA back down. We just recently shopped it across a broad spectrum of companies and came up empty handed again. His PSA had only recently reached the statistical zero threshold again. with no guarantees that they got it all and it wouldn’t come back.

So, again I brought up possible conversion of part of his term policy. When I called the company I found out that his policy’s level term period was due to expire in just two weeks, also the end of his conversion option. It has now become a no brainer. He can’t get a new term policy and his old one, to carry it beyond the guaranteed period, will cost more than a converted policy. A lot more.

Bottom line. Conversion may be a planned event. You might plan to convert $50,000 or so to permanent coverage at the end of your need for term insurance as a lifetime final expense plan. Or, conversion may just be the golden egg that laid a brand new policy for you when all of your other options are gone.