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What Is a Life Insurance Conversion Privilege?


A life insurance conversion privilege allows you to convert your policy from one kind to another. For individuals who hold a life insurance policy, it’s common for their coverage needs to change over time. For example, you may outlive a term life insurance policy and want a permanent one. With a conversion privilege, you can change your existing policy from one type to another without having to provide a new medical exam or other evidence of insurability. Here’s how it works. You may also want to talk to a financial advisor if you’re looking to make an estate plan or to see how your finances will be impacted.

What Are Life Insurance Types?

At its broadest level, life insurance is a contract that issues a payment if and when you die. It’s designed to help protect your loved ones and your estate so that there’s money left after you pass. For example, a parent may take out a life insurance policy to make sure their children are taken care of if they die. Or an individual may take out a policy to make sure any remaining debts are paid and their funeral expenses are covered.

However, the details of life insurance quickly get complicated. There are many different types of life insurance policies depending on any given person’s needs and the specific type you choose can radically change the nature of your coverage.

When it comes to payment structure, for example, whole life insurance works like traditional insurance in which your beneficiaries receive a fixed payout at your death. Universal policies, on the other hand, work a little more like a savings account, in which your beneficiaries receive an amount based on the premiums you have paid over the years.

In addition to payment structures, there’s contract length. Some policies are known as “term” life insurance. These cover you for a set number of years and then expire. Others are known as “permanent” life insurance. These cover you for your entire life and, as a result, are typically much more expensive.

You can also receive individual coverage, in which you buy life insurance for yourself, or group coverage, in which you receive life insurance as part of a cohort. Group life insurance is most common as a benefit through an employer. 

Depending on your individual needs, including costs and scope of benefits, you can choose which type of policy works best for you. Given that this is a very complicated area (this article barely touches on the full scope of options available), it’s wise to do this with a financial advisor of some sort.

What Is a Conversion Privilege?

A woman advises her mom about insurance policies

You can choose which type of policy works best for you at the time you buy the policy, but over time those needs might change. For example, you may get your insurance through a group but then want to continue that policy as an individual. Or you may have signed up for term life insurance, but then want that policy to continue throughout your life.

One option would be to let your policy lapse and sign up for a new one, but there can be many reasons not to do so. Among others, you might lose some of the policy’s accrued value or you might be less healthy and insurable now than when you first received coverage.

To address this issue, some life insurance policies include what is known as a “conversion privilege.” This is a clause in your life insurance contract that allows you to convert the policy from one type to another without needing to undergo a new medical exam, fill out a new application or otherwise prove your insurability. 

Often the main benefit of a conversion privilege is that it allows you to maintain your policy relatively easily or at a time in life when you might otherwise not be able to get affordable coverage. Occasionally, a conversion privilege will also include premium guarantees, ensuring that you can convert the policy without changing your premiums. However, this is not always the case and in fact, a conversion privilege may specifically require changed or higher premiums for the new policy.

How Do You Convert Life Insurance?

The details of how you execute a life insurance conversion will differ based on each individual account. Typically, though, this involves filling out a series of forms provided by your insurer known as a “conversion application.”

It’s important to remember that just because you do not have to undergo a medical exam or other proof of insurability, that does not mean the conversion is automatic. In fact, it’s relatively common for a conversion privilege to have certain requirements. Among others, a conversion privilege often has a time requirement, meaning that you have a certain number of years after the policy begins to convert it. Other policies may set an age limit, only allowing you certain conversions by or before a certain age. This is generally known as a “conversion period,” meaning the window of time in which you can make a conversion.

The policy may also require you to state how much insurance you want to convert and will base your new premiums on that number. It is also common for the underlying policy to charge more to include a conversion privilege in the original contract. 

Finally, conversion privileges will often differ in terms of what policy types you can select. It’s common for a life insurance policy to specify what type of policy you can convert it into, rather than leaving the issue open-ended. Make sure to review your policy carefully to ensure that the conversion privilege works for your needs.

Bottom Line

A couple studies their insurance policies

A life insurance conversion privilege is a clause in your life insurance policy that allows you to change it from one type to another without undergoing a medical exam or other proof of insurability. They can be very useful, but also very specific, so make sure you select a policy that meets your needs.

Life Insurance Tips

  • We weren’t kidding above, there really is an enormous range of life insurance options out there. If you’re considering a policy, it’s important to learn about the many different types of life insurance you can select.
  • A financial advisor can help you build a comprehensive retirement plan. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.

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