With everyone’s health on the radar a little more due to Covid, it is important to truly think long term about one’s life insurance. For some, term insurance will still be satisfactory for what a client is trying to accomplish, which could be protecting lost income or a mortgage. However, for other clients, it could be an opportune time to look at whether a term conversion makes sense. With a solid conversion option, a client can choose to keep all or a partial amount of the term coverage that he or she had. And the beauty of the conversion is that there will be no medical underwriting. For any client who has had a significant health change, this can invaluable.
A term conversion is a provision that most life insurance carriers offer that allows an insured to convert all or a portion of their coverage to permanent, without having to go through underwriting again. We all know how difficult the underwriting process can be. Normally all that is required for a term conversion is the carrier’s conversion application, and the premium required to pay the initial payment. The client also gets to retain their original rate class as part of the conversion. The term conversion privilege can vary from carrier to carrier, but generally, most carriers will allow conversion till the end of the level term period, up to a maximum age (65-75 being common). This is so important right now for insured’s who might be looking for permanent coverage, but don’t want to deal with strict underwriting due to Covid. If that client has a term policy, they can get quotes run for whatever products are available for conversion. A unique and often appealing solution here is to look at products that would offer premium flexibility. This means having the ability to pay a premium noticeably less than a lifetime premium. This can help a client ease their way into a permanent solution. The options down the road should still be discussed with your client(s). Those options could include looking at a premium increase or decreasing the face amount. One example of a conversion product with flexibility is Pacific Life’s Promise GUL. A level premium that will guarantee till age 90 will generally be 15-30% less than the lifetime premium.
Most clients won’t keep track of the term conversion option. This should be the duty of their agent/advisor to let them know when their deadline is and what products are available. For some clients, the conversion could be an option they want to take advantage of to provide some final expense coverage. The good news is that there are carriers that will allow conversions down to $25,000-$50,000 as a minimum face amount (Pacific Life, Hancock, AIG just to name a few). If a client had a $500,000 term policy originally, this could create a nominal difference in premium. Looking at new fully underwriting policies should still be mentioned as an option. But if the existing carrier has a competitive term conversion product, then not having to go through underwriting could be very appealing. Please talk to us at The Thompson Agency if you want to review a term conversion as an option for your clients.