Life Insurance Conversion Privilege Defined

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Rachael Brennan has been working in the insurance industry since 2006 when she began working as a licensed insurance representative for 21st Century Insurance, during which time she earned her Property and Casualty license in all 50 states.
After several years she expanded her insurance expertise, earning her license in Health and AD&D insurance as well. She has worked for small health insu…

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Rachael Brennan

Licensed Insurance Agent

UPDATED: Mar 1, 2022

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Here's the Scoop

  • Many term life insurance policies include a free life insurance conversion privilege
  • Individual life insurance policies can be converted from term to permanent life insurance
  • Group life insurance conversion privileges can allow policyholders to convert to an individual policy

If you’re considering buying a new life insurance policy but you have concerns about committing to a term life insurance policy, you may want to consider a company that offers a life insurance conversion privilege. A conversion privilege could give you the flexibility you’ll need to invest in life insurance sooner rather than later.

It’s hard to commit to a life insurance policy knowing that your financial situation could change. This article will help break down how a conversion privilege could help and why it’s so valuable to policyholders.

Ready to learn more about a life insurance conversion privilege? Keep reading to learn more or enter your ZIP code above to get free quotes from the best life insurance companies in your area.

Table of Contents

What is a life insurance conversion privilege?

A life insurance conversion privilege allows policyholders to convert to a different type of life insurance policy. In most cases, life insurance conversions go from term life insurance policies to permanent life insurance policies. Typically, this includes whole and universal life insurance policy types.

The conversion privilege insurance definition can vary slightly from organization to organization because of the nature of convertible life insurance policies. Sometimes conversions are complimentary while other times you need to buy a special policy add-on.

The Insurance Information Institute mentions choosing a convertible term life insurance policy if you have any doubts about your financial future. Different life insurance companies have different stipulations surrounding convertible policies, however.

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How to Get a Convertible Term Life Insurance Policy

For starters, you’ll be investing in a term life insurance company if you’re considering a conversion option. In short, term life insurance policies are usually the most affordable on a monthly basis, but they don’t generate cash value. The difference in price each month can be somewhat extreme between term and permanent life insurance options.

Most popular life insurance companies offer term life insurance, but not all. Young adults tend to pay much less for life insurance than older adults, so it can be smart to invest in life insurance sooner rather than later.

While some life insurance companies may label the conversion privilege as a conversion rider, most of them will offer this particular rider for free. Some life insurance companies that offer a conversion privilege include:

  • Allstate
  • AIG
  • MassMutual
  • Nationwide
  • Progressive
  • State Farm
  • Prudential

Each of the companies above offers both term and permanent life insurance options and allows term life insurance policyholders to convert if desired. However, there are some special considerations you should know about before investing in one of these companies.

What should I look for in a life insurance conversion privilege?

There are two major considerations to look into before you choose a life insurance company even though they may offer a conversion privilege. First, you’ll need to learn more about the company’s rules for policy conversions. For example, many companies have different term life insurance conversion periods.

In short, this period can limit the times during which you can convert your policy from term life insurance to a permanent life insurance alternative. For example, Allstate doesn’t allow policy conversions after 15 years of coverage or for those over 65, but this isn’t the case for all companies.

Beyond conversion periods, prospective policyholders should consider the insurer’s permanent life insurance policy options. Some of the companies listed earlier will only have whole life insurance as an option.

If you think you might want to convert to a more complex permanent life insurance policy, you might not have as many options. MassMutual is one company that offers whole life insurance, universal life insurance, and variable universal life insurance options. This brings further value to the conversion privilege.

How much is life insurance with a conversion privilege?

Many people choose term life insurance policies simply because of the price. If you are considering a life insurance policy and want to have a conversion privilege just in case, you’ll still want to get the best rates in case you never officially convert your policy.

The conversion of an insurance policy will obviously change your rates, but that is a more challenging topic to break down considering the fact that the conversion could happen many years from now. Below, we highlight sample rates for some of the companies that offer a term life insurance conversion privilege.

Sample 30-year $250,000 Life Insurance Rates with a Conversion Privilege

Age Allstate AIG MassMutual Nationwide Prudential State Farm
25 $25.00 $18.94 $21.53 $24.03 $20.35 $31.12
30 $26.00 $19.53 $23.05 $23.36 $21.44 $35.02
35 $30.00 $21.08 $26.10 $26.26 $23.19 $39.37
40 $44.00 $29.29 $34.58 $34.04 $32.82 $56.34
45 $64.00 $46.47 $51.55 $53.40 $49.44 $81.99
50 $96.00 $75.71 $77.00 $80.10 $76.78 N/A
55 NA $132.37 $143.78 NA $148.53 N/A
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The rates above help give you an idea of how much you would pay for a life insurance policy before you go through the conversion process. These monthly rates are samples for healthy male non-smokers, so they could be a bit different for women or smokers.

AIG, Prudential, and MassMutual have the lowest rates based on the coverage amount and term length used for this sample, but that could change for different coverage amounts or term lengths. It would be worthwhile to get quotes from these companies and compare them to other competitors to get the best rates.

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What happens when I convert a life insurance policy?

Life insurance conversions are usually a straightforward process. With most companies, the underwriting process is performed without a new medical examination or any other major changes that would typically occur if you were to start a new policy with a new company.

As mentioned earlier, your monthly premiums would change depending on the type of permanent life insurance policy you converted to. Otherwise, you wouldn’t have much else to worry about.

Keep in mind that group life insurance conversion rights may have different stipulations. This means that any employer-provided life insurance policies may or may not have the same conversion process as an individual life insurance policy.

Group life insurance conversion rights also include converting from a group policy to an individual life insurance policy. Some states lawfully require group life insurance policies to offer a conversion privilege to protect employees.

Life Insurance Conversion Privilege: The Bottom Line

Life insurance is an important investment that gets increasingly expensive as you age. Investing in a term life insurance policy with a conversion privilege could help you get an affordable policy with added flexibility for your future.

By now, you should have a better understanding of life insurance conversion privileges. Before you go, enter your ZIP code above to get free quotes from the leading life insurance companies in your area.