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Term life Insurance

Want to buy an insurance plan? Go for the Convertible Term Insurance Plan.

Term Insurance Plan comes in a wide range of variations such as the return of premium term plan, increasing or decreasing term plans, monthly income term plans and more. And one such term plan is a convertible term insurance plan which can be converted to other type life insurance policy while offering double benefits. Let’s find out more about it.

Want to buy an insurance plan? Go for the Convertible Term Insurance Plan. 1

Why should you opt for a Convertible Term Insurance Plan?

You may be contemplating whether a convertible term insurance plan is helpful or not. All things considered; it is. With regards to purchasing a life insurance policy, the majority of people get baffled concerning which policy to buy. Would it be a good idea for you to pick a term insurance plan which would supplant your pay in the event of your sudden demise? But what about the maturity benefit? Should you invest in a policy offering maturity benefit? What should be the ideal insurance coverage then?

A convertible term insurance plan consolidates the advantages of these two significant life coverage plans – term protection and endowment insurance. While a term plan guarantees optimum life insurance coverage, an endowment policy promises maturity benefit. Hence, you get a double benefit with a convertible term life insurance plan. Besides, the premiums are likewise less expensive since it is a term life insurance plan.

Convertible term insurance is suitable if you want a significant amount of maturity benefit rather then return of premiums paid. So you can continue your term policy as it is and as the maturity approaches and if you are alive, you can change it to a convertible term policy to receive maturity benefit as well.

How does it work? 

Convertible term insurance is positioned as a term plan; however, with an additional component of conversion. Let’s consider an example to understand how a convertible term insurance plan works:

For instance, an individual purchases a convertible term life coverage plan for a 20 years term duration. The chosen sum assured by the policyholder is Rs 10 lakhs. The policy permits conversion during the last 5 years of the policy term. After conversion, the policy gets changed to an endowment policy offering a maturity benefit which is equivalent to the Sum Assured.

Now if the policyholder dies within the tenure of the policy, then the insurer will pay the sum assured. And in case he or she survives the policy term then the sum assured amount of Rs 10 lakhs as maturity benefit will be paid. But if the individual does not opt for policy conversion, then the policy would proceed as a term protection plan without any maturity benefit.

Features of Convertible Term Insurance Plan 

Option to convert: A convertible term insurance plan has an alternative appended to the policy which permits the policy conversion to an endowment plan. Some convertible term life plans have an inbuilt option of conversion while some allow the conversion as an add-on feature. It depends on the policyholder whether he or she wants to add this feature by paying an extra premium or not.

On-Demand ConversionRegardless of whether a convertible term insurance plan has an inbuilt option or an extra feature, conversion happened only when the policyholder makes a formal request to the insurer. The insurance company does not make the conversion on their own or automatically. In case the policyholder does not request for the conversion, then the life insurance plan continues as term life insurance and ends either prior on the death or the maturity of the policy.

Premiums: The policy premiums are evaluated based on the age, policy tenure, the sum assured and premium paying term. Premiums are usually determined at the beginning of the policy and do not get changed during the entire policy tenure. At the point when the policyholder practices the conversion option, the policy and the advantage structure change while the charges stay unaffected.

Benefits with conversion: When the term insurance plan is not converted into any other plan, then only the death benefit is payable. However, as it gets converted into an endowment plan, then the policy offers a maturity benefit along with death benefit.

Riders: The convertible term policy permits optional riders which can be taken by the policyholder wilfully by paying an extra premium. Some primary riders accessible under convertible term life coverage plans are Critical or Terminal Illness Rider, Accidental Death and Disability Benefit Rider, Waiver of Premium Rider, amongst several others.

Tax benefits: Convertible term insurance plan offers tax benefits. The premiums toward the policy come under tax exemption under Section 80C of the Income Tax Act. While the benefits of the policy received, such as the death benefit amount or the maturity benefit are also eligible for tax exemption under Section 10(10D). Even though there is an upper limit of Rs 1.5 lakhs under Section 80C exemption, but no maximum limit of exclusion under Section 10(10D).

Sum Assured: Convertible term insurance plan typically has a restricted sum assured. Since the policy is later convertible to an endowment plan which comes with a maturity benefit, therefore unlimited levels of sum assured are not permitted.

Underwriting: Underwriting refers to the risk assessment of the insured person done by the insurance company. It is issued by the insurer and only after the underwriting is done the policy gets issued. However, when the term policy gets converted, then no new underwriting is required.

Points to remember while buying a convertible term insurance plan

Although a convertible term life coverage plan is simple and easy to understand, there are specific points that you ought to remember before purchasing these plans. These points are as per the following:

  • Premiums for convertible term insurance plans are higher than the traditional term plans. The reason behind higher premium cost is maturity benefit gets equal to the sum assured when the term policy is converted.
  • In case your insurance policy permits conversion during any time of the policy tenure, then it is always better to convert at a later stage of the policy nearing maturity.
  • Convertible term plans are not readily available with all the policies. There are just a modest bunch of accessible plans. Thus, your decisions are restricted.

Overall, convertible term insurance plans are a good option to choose if you want both death benefit as well as maturity benefit. However, as always, you need to focus on your requirements and affordability and then make the buying decision. In case you require more clarity on the same, you can visit and make your buying decision.

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