Converting Your Term Insurance into an Asset
If you require permanent life insurance coverage for family, estate planning, business, or tax planning purposes or you just wish to accumulate money in your life insurance program. It may be time to look at a permanent, level cost solution.
Many of us purchase large amounts of low-cost term insurance to cover our needs while we are raising our families or growing our businesses. However, as the saying goes, “there is no free lunch”. Eventually, this low-cost term insurance starts to become expensive and converting your term insurance should be considered.
If your health has changed and you are no longer able to qualify for a new permanent insurance policy don’t worry, your safety net is the conversion option in your existing policy.
5 Key Reasons for Converting Your Term Insurance Coverage:
- A change in your health – you are no longer able to qualify for life insurance or you have received a sub-standard rating.
- A change in your residency – after you obtained your policy you relocated to another country. Most insurers in Canada will not offer new coverage if you are living abroad. Since the conversion feature in your policy is contractual converting to a permanent plan is allowed no matter where you reside.
- A change in occupation – health is not the only reason an insurer may rate (apply substandard rates) or deny your application for new coverage. If you have changed occupations and now are employed in a more dangerous job, conversion allows you to obtain permanent coverage at standard rates.
- Getting Money out of your Business Tax Effectively– having a corporately owned insurance policy can result in paying for a potential business owner retirement asset in after-tax business dollars versus after-tax personal dollars
- Convenience – Once you have decided that permanent insurance is required converting your existing term insurance is the easiest way of getting it. Usually, just your signature on a conversion form is all that is required.
When Is the Best Time for Converting Your Term Insurance?
• Sooner rather than later – The low-interest-rate environment has resulted in the insurance companies regularly raising their long term insurance premiums. In this case, age is more than just a state of mind. As you age your premiums increase significantly so it is always best to convert your term insurance as early as possible. And to add insult to injury, insurance age changes 6 months before your birthday!
• Before your term insurance renews – If you are unable to replace your term insurance at renewal because of health, residency or occupation, your premium to renew will be substantially higher than what you are paying now. Converting to a permanent plan usually makes sense plus the converted premium is locked in and guaranteed for the rest of your life.
• Before the Conversion Option expires – When converting your term insurance options vary but usually policies are convertible up until age 65, 70, or 75. Waiting to convert will cost you more, increasing the risk of it becoming unaffordable when you may need it most. It is important not to let your option pass without full consideration.
The Conversion Option contained in your term insurance policy is a very valuable feature that varies from company to company. It may be appropriate to schedule a review to determine if you have a permanent need for insurance.
Please call me if you think you would benefit from a review of your current insurance. As always, feel free to use the social sharing buttons below to share this article with a friend or family member you think might find this information of value.
Chris Coulter is the Founder and President of The Finish Line Group. He works with business owners to leverage their businesses to increase their wealth, reduce corporate and personal taxes, create viable succession strategies, enable employee retention strategies and allow them to exit their businesses on their terms.
Chris’ passion for what he does evolve from the mistakes he made in his first business; by not diversifying his risk and not utilizing a lot of the opportunities within his business to create significant wealth. Chris found out the difficult way and now educates business owners on how to avoid many of his former oversights and ultimately control where their finish line ends.