In the life insurance space, we spend a lot of time talking about whole life insurance vs. term insurance, or whole life vs. universal life insurance. We spend so much time, in fact, that we forget to talk about convertible term insurance. As whole-life-friendly advisors, of course, we know that there’s tremendous value in that asset. However, many people are asking: Is convertible term life insurance worth it? And to that, we want to offer a resounding YES.
The Importance of Human Life Value
The human life value approach to life insurance is something we believe in at Truth Concepts. To put it as succinctly as possible, HLV suggests that you should get as much life insurance as you can get. And why wouldn’t you want as much as you can get? Insurance companies cannot give you more insurance than you’re “worth,” and when you only look at a “Needs Analysis,” you’re selling yourself short.
The reality is that life is full of unknown variables, and the more insurance coverage you have, the better you position your family and loved ones for the unimaginable. If we can impress upon clients, the importance of having more insurance as opposed to less insurance, we can help more families weather difficult scenarios.
Insuring up to HLV can help cushion against inflation, increasing income, and other scenarios as well. Saving saves families, quite literally, and the money from death claims can make a massive impact. It gives families space to grieve and figure out the next steps without financial pressures. The death benefit can also contribute to additional future coverage and other assets that create long-term support.
Convertible Term Life Insurance Supports HLV
So what does this conversation have to do with convertible term life insurance? It actually has everything to do with HLV. The reality is that whole life insurance premiums are larger than term insurance premiums. This occurs because of the benefits of whole life—including contractual guarantees, and living benefits like the cash value. However, this means that for many families, paying for maximum HLV can be a stretch.
Convertible term life insurance is an option that can bridge the gap. This insurance is term insurance, yes, however, it has the potential to be converted to whole life insurance over time. This means it provides additional flexibility. Not to mention, it locks in your client’s insurability. In other words, if they can get approved for convertible term insurance, they can convert it to whole life insurance over time without needing an additional application process.
This type of insurance is a game-changer for many families. It allows your clients to insure up to their full human life value, without the need to commit solely to whole life insurance premium. Yet, it still keeps the window open for your clients to convert as their income increases, or they have more money freed up somewhere else.
How Does Convertible Term Life Insurance Work?
Think of convertible term life insurance as a middle ground between term insurance and whole life insurance. The application process is going to be a bit more personal than a regular term insurance policy, for example. This occurs because whole life insurance is a type of permanent insurance, which means there’s some risk assessment that the company must complete in order to approve applications. Convertible term insurance can become whole life, so the process must be more involved than regular term insurance.
Additionally, convertible term insurance is going to have slightly higher premiums than regular term insurance. Though premiums will still be lower than whole life insurance premiums until/unless you convert some of your policy. Whole life insurance premiums are higher in general due to the permanent nature of the policy, as well as the cash value component.
Convertible term life insurance is convertible for a period of time. For example, you may have a ten-year window in which you can convert your insurance to whole life insurance. You can do so in small intervals, or all at once. However, once the window closes, you can no longer convert that insurance. For some clients, this can be the perfect window for them to slowly increase their whole life insurance, and therefore their savings.
Is Convertible Term Life Insurance Worth It?
We think so! There can be a tendency in the whole-life-friendly community to villainize other types of life insurance. However, convertible term life insurance is a great way for families to have full coverage that also fits their budget. The convertible component gives them the flexibility to have more permanent coverage later without needing to submit to another health exam. This also makes it a sound option for those who are interested in locking in rates at their current age and health.
Life insurance is important because it creates certainty, puts minds at ease, and helps families thrive. Convertible term insurance can be a major piece of this puzzle by covering an immediate desire, and keeping doors open for later, too.
If you have clients who are skeptical about solely relying on whole life insurance, would like a more flexible way to insure up to HLV, or want to lock in their current premium rates, convertible term life insurance is a great option.
Learn More at a Truth Training
If you’re interested in learning how to illustrate principles like the above to your clients, come to a Truth Training. This live, 3-day event shows you exactly how to use the calculators to convey important financial concepts. You can register here, or email Katie at firstname.lastname@example.org with any questions you have.