Conversion privilege

A conversion privilege allows a term life policy to be exchanged for a permanent policy, usually whole life or universal life, from the same insurer without proving good health again. The new policy keeps the rate class of the original term policy, even if the insured has since developed a serious illness.

Each policy sets its own limits. The conversion window may last for the whole level term, until an age such as 65 or 70, or only for the first several years, whichever comes first. Insurers often restrict which permanent products are available, and the converted amount cannot exceed the term amount. Hypothetical example: a 52-year-old with a $500,000 20-year term policy is diagnosed with heart disease and can no longer qualify for new coverage. He converts $250,000 to universal life at his attained age, with no health questions, and keeps the rest as term.

Premiums on the converted policy are usually based on the insured's age at conversion and are much higher than the term premium. The privilege matters most for people whose health declines, so check the deadline and product list before you need them. Employer group life carries a separate conversion right when you leave a job. See converting term life to permanent: how the conversion option works and keeping group life insurance when you leave a job.