Convertible Term Life Insurance

While term insurance is the simplest form of life insurance protection and can provide you the largest death benefit payout for a given amount of money, its biggest downside is that it doesn’t build a cash value over time.

Due to the above reason, many people prefer other endowment plans that can provide financial protection, at the same time, building up cash value. However, these plans come at a higher premium for a given sum assured, as compared to the term plans. 

What if we tell you that you can combine the best of both the worlds?

The answer is - ‘convertible term insurance’, a dynamic solution that offers both short-term security and long-term adaptability. 

A Convertible Term Plan is a variant of term plan that combines the simplicity and affordability of term insurance with a valuable feature - convertibility. It allows policyholders to convert their term policy into another endowment insurance policy.

This feature offers individuals the flexibility to adapt their coverage as their life circumstances change without the hassle of reapplying for a new policy.

However, the terms and conditions, especially with respect to the policy year when conversion can be opted, might differ across insurance providers.

Now that we know what a convertible term insurance is, let’s see how it works taking a scenario: 

Mr. Sharma, aged 35 years, buys a convertible term insurance plan for a term of 20 years and a sum assured of 25 lakhs. 

His policy allows a conversion to an endowment assurance plan only in the last 5 years of the policy tenure. In the case of conversion, his policy would pay a maturity benefit equal to the sum assured.

Below are the following cases that can happen in the case of Mr. Sharma: 

Case 1: In the 12th year of the policy, Mr. Sharma meets an unfortunate death. The sum assured of Rs. 25 lakhs would be paid to his nominee and the policy would terminate. 

Case 2: In the 15th year of the policy, Mr. Sharma decides to convert his policy and then survives the policy period of 20 years. On maturity, a maturity benefit of Rs. 25 lakhs would be paid to him. 

Case 3: After the conversion, Mr Sharma meets an unfortunate death in the 18th year of the policy. In this case, the death benefit of Rs.25 lakh would be paid to his nominee and the policy would terminate.    

Case 4: In case, he survives the policy term and has not used the option of conversion, no maturity benefit would be paid to him.

1. Level Term Plans

2. Return of Premium Term Plans

3. Renewable Term Plans

So, you might be wondering if this convertible term plan is worth buying, that too with a higher premium than regular term plans. 

Before answering that, let's see what are the questions that come to our mind while buying an insurance plan:

• Would this plan be sufficient, and the coverage would replace my income in case of my death?
• What if I survive, Will I get a maturity benefit?
• How about investing in a regular endowment assurance plan that will give me a corpus on maturity?
• But then with my premium budget, the sum assured would go down! Right?

A convertible term insurance is your answer to all these questions. It combines the good things of both the plans.

While the term plan provides you optimal financial protection, the endowment assurance plan, on conversion, provides the maturity benefit to add to your savings corpus.

You can have a sufficient financial coverage for a major part of your policy term and then later convert it into an endowment plan to get a maturity benefit. That way you get a high sum assured during the initial period, a lower premium as compared to regular endowment plans and a maturity benefit too. 

The best of both worlds you see.