All You Need To Know About Convertible Term Life Insurance
Term plans are popular for several reasons. They are especially appealing to younger customers, since they tend to be slightly more affordable than other varieties of life insurance.
However, term insurance policies also come with a specific feature, or the lack thereof, that some consumers may not like – no maturity benefits. If you know enough about what life insurance is and how it works, you may be aware that term life plans are one of the simplest policies available today. While they tend to be low-cost and no-frills, they also offer no maturity benefits, i.e., if the life assured were to survive the policy duration, they would get no pay-outs from the policy.
This can be one of the reasons pushing several people away from buying a term life insurance policy. However, know that there is more than one sub-type of term insurance, and thus, you may find the feature you are looking for. If maturity benefits from term insurance are what you seek, you may choose from options such as ‘return of premium’ plans or convertible life insurance.
If you are well aware of what life insurance is, you may know that return of premium plans do not offer any growth on the premiums you pay, they simply return to you the premium you have paid into the plan over the years, if the person insured were to survive the term duration.
Hence, if you seek financial growth, or savings, from your term life insurance policy, convertible term life insurance may be the option for you.
What is Convertible Term Life Insurance?
There are several term life insurance plans available today, each one slightly different from the other to accommodate the various requirements of consumers. Convertible term life insurance is one of them.
At its core, it is a term life insurance plan, functioning the way a level term plan would work. The added feature offered by these convertible plans is that they can, in due course, be converted into an endowment plan.
What is an endowment plan? As opposed to term plans, endowment plans offer survival benefits in the form of savings. Hence, these are plans you can expect maturity benefits from.
To better understand what sort of returns you can expect from convertible term plans, you can use the life insurance premium calculator on the plan page. This can help you get a better idea of whether this type of plan would be right for you.
Convertible Term Plan Features
Here are a few key features of convertible term life insurance plans that you should know about if you are considering buying the plan or have already purchased it.
Term life insurance plans are known for their affordable premiums. However, premiums for convertible term plans can be slightly higher than for level term plans. Using a term life insurance premium calculator, you can get estimates for how much will you be required to pay for this plan.
The conversion option – from term insurance to an endowment plan – kicks in only after the policyholder makes such a demand. If the policyholder does not request a plan conversion, the policy will continue as a term insurance plan. Moreover, the conversion option may only be available after the plan has been maintained for a certain number of years. This may differ across policies and insurance providers.
When buying a new plan, the insurance provider will conduct the underwriting process. However, this process will not be required when converting the plan.
Convertible term plans may also be eligible for tax benefits, similar to other life insurance products. You may consult your tax advisor to get a better idea of how you can avail of tax exemptions with these plans.
Should You Opt For Convertible Term Life Insurance?
Whether you should go for a convertible term life plan depends on what you are looking for in a life insurance plan. Convertible plans allow the policyholder to get dual benefits from a single plan while keeping it relatively simple.
If you are currently not willing to commit to an endowment plan but may want one in the future, buying a convertible term plan at the moment may suit you. It will allow you to avail of a relatively low-cost, simple life insurance plan in the form of term insurance, which you may later change to an endowment plan. This will allow you to get maturity benefits that you may seek later in life.
At present, convertible term life insurance plans are relatively newer in the Indian insurance market. Hence, there may not a plethora of choices available for consumers to choose from.
If you are planning to buy a convertible term life insurance plan, carefully look through all the options available to you. The minutiae may differ across policy providers, so read through the features and benefits and choose what suits you best.