31 Jul Should I convert my term insurance policy?

 Q. I have a term insurance policy that I can change into a permanent policy. How can I tell if the change would give me a better policy or price than just buying a new permanent policy?

A. You’re talking about what’s called a conversion right.

If your health status has changed since you first purchased the policy, you may want to seriously consider a conversion.

Some term plans allow an insured to avoid any underwriting — no evidence of insurability, no exams, no blood — when converting to a permanent plan, said Ed Gaelick, a Chartered Life Underwriter and Chartered Financial Consultant with PSI Consultants in Glen Rock.

“The rating applied to the new policy would be the same as was issued on the original term plan — ie: Preferred Non Tobacco,” Gaelick said. “That is the big advantage of a conversion right.”

Gaelick said if you are as healthy as you were when you originally purchased the term policy, the premium for a new permanent plan will be the same whether you convert or buy new.

There is no special pricing because premiums are based on your attained age, he said, noting that you will simply save the underwriting time and uncertainty of any change in rating.

“If you are less healthy than you were years ago when you purchased the term, you could get more favorable rates by converting than if you went through underwriting and bought a new policy,” Gaelick said.

But keep an eye on the clock.

Term conversion rights don’t last forever, Gaelick said. There will be a date or attained age where that expires.

“Check your policy to ensure you don’t miss the date in the event you have interest in conversion,” he said.

While price is important, it’s not the only thing that matters, said Brian Power, a certified financial planner with Gateway Financial in Westfield.

“Be sure to take a hard look at what was the original goal of the policy,” he said.

Power said you should ask yourself some questions: 1) Was the original policy for protection for the family while the kids were young, and now they’re out of the house, does that need still exist? And 2) Do you have a longer term need to protect loved ones and the cost of the term policy is getting too expensive?

There are many types of permanent life insurance, Gaelick said, each with different features. Some are only “permanent” if certain conditions hold true.

You should speak to a pro with expertise in permanent life insurance before making any decision.

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This story was first posted in July 2015.