Term insurance policies are designed to protect you for a short period of time: 10, 15, or 20 years often at a reasonable price.
Before your level term period expires (and before your policy anniversary date nearest age 70), you may be able to convert some of that term insurance into a permanent policy. Be sure to check your policy for your specific last day allowed to convert.
Here are three reasons to consider converting your policy to permanent life insurance earlier.
1. Premiums are directly related to age and health
When you convert, your life insurance premiums are directly related to your age and the risk class of your term policy. With each birthday, the insurance premiums will increase. Meaning the least expensive time to purchase insurance is now!
Let’s look at Scott and Max:
Both purchase $500,000 of 20-year term insurance at age 35 for $350 annual premium and receive a preferred non-smoker risk class rating.
Max converts his policy after 5 years to a Prestige 100 whole life insurance policy at age 40 for an annual premium of $7,673.
Scott converts his policy after 15 years to a Prestige 100 whole life insurance policy at age 50 for an annual premium of $12,693.
By age 90, Max will pay $385,750 in premium while Scott will pay $513,320 for the same Prestige 100 whole life policy.
2. Build a cash value
While term insurance can have a lower cost, it may be costing you in the opportunity to build cash value.
Depending on the type of permanent life insurance that you purchase, you have the opportunity for dividends and compound cash value growth that happens inside of a permanent policy. This cash value can be accessed in an emergency, or potentially supplement your retirement income.
3. Potential for higher benefit at death
When you own a whole life insurance policy, at death your beneficiary receives the stated amount of the policy (example: Scott and Max have a $500,000 death benefit) plus the amount any non-guaranteed dividend additions (if the paid-up additions option is elected).
With term insurance, the beneficiary only receives the stated amount of the policy ($500,000).
The earlier you convert, the more time you have to take advantage of the benefits of permanent life insurance.
Cosmo Insurance Agency is knowledgeable in various options including but not limited to – term, ROP, permanent and whole - from over two dozen A rated carriers. We are familiar with the rate classifications that particular carriers use to determine the health class of enrollees – and there are significant differences between them. No matter what the results of your medical examination are, we will find the insurer that will provide you will the best rating class and thus the lowest premiums.
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