Convertible Term Life Insurance

What is a Convertible Term Insurance?

How Does a Convertible Term Insurance Work?

What are the Features and Benefits of Convertible Term Insurance?

Here are some of the most common features and benefits of a convertible term plan: 

1. Conversion

Convertibility is the standout feature of a Convertible Term Insurance. Policyholders can transition to endowment insurance during the term of the plan, provided their request for conversion is aligned with the insurance provider’s terms and conditions.

2. On Demand Conversion

The option of convertibility can be exercised only by an official request to the insurance provider. If there is no request, the policy will continue as the initially bought term plan.

3. Premium

The premium for term insurance with conversion option is typically more than the regular term plans because it provides the option of maturity benefit if conversion option is taken. However, the premium is still less than the regular endowment plans.

This premium is determined at the inception of the plan and remains the same throughout the tenure of the policy even if it is converted.

4. Benefits Payable

Initially, when the plan is a pure term plan, only the death benefits are payable to the policyholder. However, if the conversion option is exercised and the plan is converted to an endowment plan, it acquires a maturity benefit too along with the death benefit. 

5. Underwriting

Risk assessment of the insured, known as underwriting in insurance, is done at the purchase time of the policy. However, when the policy is converted, no fresh underwriting is required.  

6. Tax Benefits

Convertible term insurance offers tax benefits under Section 80C of the Income Tax Act for the premiums paid up to a specified limit. The maturity amount, the survival benefits and the death benefit received, including bonuses, is tax-exempt under Section 10(10D) as per the prevailing tax laws.

7. Riders

Convertible Term Plans provide the option of adding riders by paying a nominal additional premium. Some common riders that can be added to these plans are accidental death or disability benefit rider, critical illness rider, terminal illness rider, etc.

What are the Other Types of Term Insurance Plans?

Is Two-in-One Benefit of Convertible Term Insurance Worth it?

FAQs about Convertible Term Insurance

How is Convertible Term Insurance Different from Renewable Term Insurance?

A convertible term insurance provides you the option of converting it to an endowment plan during the tenure of the plan, without undergoing fresh underwriting while a renewable term insurance provides you the option to renew your plan once the term is completed. However, while renewing, the premium might change.

Do I Need to Provide Proof of Insurability when Converting?

No, one of the advantages of convertible term insurance is that you can convert without proving insurability. There is no fresh underwriting or change in premium. 

When can I Convert my Term Insurance Policy?

Conversion option typically has a specific window during the term, often within the last few years. Check with your insurance company or policy documents for complete details.