Term Insurance: Examining The Conversion Options
By the end of the story the pigs have begun to walk upright and they carry whips. Promised improvement in conditions for other citizens have been forgotten. And the Seven Commandments that were to serve as the foundation for the common democracy have been reduced to just one:
All animals are equal, but some animals are more equal than others.
So ends George Orwell’s sobering classic novel, Animal Farm.
One danger of advanced technology in the insurance industry has been the “commodity mentality”.
Created by the ease and prevalence of spread-sheeting the premiums for any of a broad array of available term products as a starting point for a choice of carrier. Unfortunately the numbers generated are too often the end point as well. It becomes “all about cost” and an agent will recommend Texas Life and Limb because the coverage is a nickel cheaper a month.
But a wise advisor looking beneath the price tags will find that, similar cost notwithstanding, some term products are more equal than others.
The most important feature of any term policy is the conversion option.
The privilege of exchanging the policy for the carrier’s permanent product at the original medical classification without new underwriting. An insured may come to the end of the guaranteed level premium period only to find that he or she has a need for, at least some of, the coverage going forward.
There are three options:
1) Pay the onerous and rapidly accelerating one-year term rates, or
2) if still in good health, shop for the best price on permanent coverage, or
3) if there have been health incidents during the level premium period, exercise the right of conversion under the existing contract – and the terms and conditions of that conversion option are where the thrill of a lower cost can be quickly forgotten.
Consider:
- What permanent products are available for conversion? The most generous carriers allow for conversion to any permanent product in the portfolio at the time the option is exercised. Other carriers restrict the choice to certain contracts now, which may or may not be available later.
- What is the likelihood that available products will be competitive? Consider term insurance with a carrier that has a reputation for and exhibits a likelihood for future generation of competitive permanent products.
- How long into the life of the term product is the conversion privilege available? Some policies allow conversion for the full level premium period. Some only to a certain age. Some only for a set number of years, even if less than the level premium period.
- How much flexibility is there in the amount and segmentation of conversion elections? Can only part of the coverage be converted? Can it be converted in stages?
Nothing will de-commoditize an advisor’s approach to term more quickly than a close examination of the conditions of the policy’s conversion privilege. For assistance in making the best term choice for your client’s situation, all factors considered, contact your Life Sales Representative.
Lest readers think that all scary characters in literature are equal, AbeBooks.com conducted a worldwide poll to determine the scariest. The winner was Big Brother, from George Orwell’s other famous dystopic novel, 1984, edging out Hannibal Lecter from the pen of author Thomas Harris.