Term Insurance Conversion

Speaker 1 (00:07):

Hello. This is Bill Bomo with OC Consulting Group discussing something you really need to understand about term insurance. If there was one type of life insurance that most people thought could be spreadsheeted and commoditized, it would almost certainly be term. However, there’s some changes in the industry that you really should be aware of. Traditionally, insurance carriers allowed a lot of flexibility with their term policies. You could split the policy reduce death benefit. You could certainly convert it to any policy that the company currently offered. However, the world is changing. You can no longer assume what you used to be able to, and specifically, I want to talk about conversion. One of the very valuable features of convertible term insurance is that down the road when you may not be as healthy or even insurable at all, you can convert to a new permanent policy at your original health class. 

Speaker 1 (01:09):

This means, for example, even if you had a heart attack or were diagnosed with cancer, or simply could only qualify at standard relative to your original preferred rate, you could still convert to a new permanent life insurance policy at that preferred rate. A significant change Im seeing in the industry is what those term policies are convertible to. A number of insurance companies are changing the rules, at least relative to what policy owners understood. They no longer allow conversion to any policy in their portfolio, or if they do, it’s only for a limited number of years. They are introducing contracts specifically for conversions. The result is pricing that is dramatically different than what is available to a newly underwritten individual. It’s not unusual to see conversion numbers for a preferred best class equal. The current numbers for someone with a couple of table ratings. I recently ran numbers for a 50 year old preferred best mail for 1 million. The company has a currently available product for a $9,500 annual premium. However, the conversion product at preferred best had a premium of over 22,000. They can do this because the earlier favorable conversion was by practice, not by contract. I believe it’s vitally important to work with a carrier who allows by contract conversion to any product they currently offer. That’s what I wanted to relate today. Remember, objective information, drives informed decisions. Have a good day.

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