What is A Convertible Life Insurance Policy?

A convertible life insurance policy is a term life insurance policy that is convertible into a whole life insurance policy without evidence of insurability. The convertible part is typically attached to a regular term life insurance policy as a rider and therefore raises the premium.

Convertible Life Insurance Basics

There are a few important things to know about the basics of convertible life insurance:

  • There are two basic types of life insurance policies. 1) Term which lasts for a specific period of time and pays death benefits 2) Whole or permanent life insurance which lasts until end of life or old age and pays out in both death benefits and cash value.
  • A convertible life insurance policy is a term policy that can be converted into whole or permanent life insurance.
  • Typically the convertible part of the policy is a rider. Most life insurance policies have a number of riders that can be attached to alter the way a policy works. Each will typically alter costs and benefits, but usually result in better coverage for a higher premium.
  • Convertibility means that the policy holder can transition to a whole life policy during a set period without having to provide extra “evidence of insurability”
  • Evidence of insurability is the screening your insurer does to determine their risk and your premium price.
  • So essentially if you know you want term coverage now, but would want permanent coverage later, you can attach a “convertible” rider on your term policy to avoid paying bigger premiums down the road (as your health and age could mean a more expensive whole life policy if you say take the evidence of insurability test 10 or 20 years down the road.