Term insurance policies have a golden egg buried in them call the conversion option. This option allows you to convert all or part of your term insurance policy into a permanent policy without evidence of insurability.
This is huge in several ways. Let’s use me as an example. I have a $500,000 term insurance policy I took out 10 years ago when I was, from an underwriting standpoint, more in my prime than I am now. I was approved at preferred plus rates, the best rate class available. I’m still in very good health, but with a 10 years and a few more health wrinkles I am at best a standard plus risk.
I am considering adding $250,000 of permanent insurance to my portfolio. If I go out and buy that at my age and current underwriting classification, the best annual premium I could expect would be about $3600 annually. But, if I pull out that golden egg from my old policy I can convert $250,000 at my original preferred plus rate class and the annual premium would be $3000 annually. While $600 a year isn’t huge, when you consider paying it for 20 or 30 or more years, well….. If I had cancer and wasn’t insurable at all, I could still convert that policy at their best rate class.
And that’s if I do it today. I won’t be older for insurance purposes tomorrow, but the word is on the streets that the products I just quoted may be going the way of overpaid CEO’s. In this example I used a universal life no lapse guarantee product, simply the best, most affordable fully guaranteed product on the market.
What sets it apart from other permanent products such as whole life and traditional universal life is that it doesn’t have any cash value and uses, like term insurance, an external company guarantee. Policies with cash value, which not so magically comes from the person paying the premium, means that the price is substantially higher than policies with an external guarantee.
So, if you have any thoughts of conversion, or perhaps purchasing a new permanent policy or replacing an overpriced cash value policy, go directly to your independent agent and tell them you want it and you want it now.
Bottom line. There are three points that should be considered by those for whom permanent life insurance is part of their overall insurance plan or who are considering conversion. First, if you already have a universal life policy with an externally guaranteed no lapse provision, it will not change. Second, because product and rate changes usually do not happen instantly, there will be a period of opportunity for those who need permanent life insurance to still purchase it. Those prices that can be locked in now will likely be looked back upon as a brilliant purchase, savings tens of thousands or more of premium dollars over the life of the policy. And third, assume insurance companies will not announce to the world that they will be discontinuing an under priced product because they would probably would prefer to have it quietly disappear.