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Renewable and Convertible term insurance: Why do you want this?


 Renewable term – at the end of the term (i.e 10 or 20 years) the policy continues at higher premiums, with no medical requirements. If the policy is not renewable, your policy is simply over and done without any possible consideration.

Convertible Term – convertible policies allow you to exchange your term policy for a permanent lifetime policy with no medical requirements. No matter how uninsurable you are, you can lock in a permanent life insurance policy. If the policy is not convertible, then if you become uninsurable over the course of the term you will simply be out of life insurance once your term policy is done.

Suggesting that all life insurance is the same is the same as saying all cars are the same. Sure, both a 1970 Lada and a 2023 Volvo have four wheels and will travel the speed limit to your destination. Similiarly with life insurance, a policy that is not renewable and convertible will pay the same death benefit – they both get you to your destination.

The difference is what happens when things go wrong. The lada has no airbags, no seat belts, no ABS – no safety features when things go wrong. The Volvo? Has safety features.

Do you care? Probably not if you’re just driving around. But if you have an accident – something goes wrong – then you’ll really care a LOT about being in the Volvo instead of the Lada.

Renewable and convertible term life insurance is the similiar. Policies without these features pay the same death benefit if you pass away – they get you to your destination. However if things go wrong (and they tend to with life insurance as we get older – nobody’s getting healthier as we age), then at that time you’ll be very concerned about having a policy that is renewable and convertible – the airbags/safety features for your life insurance policy.

Bob, 40, buys a $500,000 online 20 year term policy that is not renewable and convertible. John, also 40, buys a 20 year term policy that is renewable and convertible.

If Bob and John both die their families both receive $500,000 – there’s no difference.

But they’re probably not going to die. They’re probably going to live a long healthy life. So lets fast forward to the end of the 20 years of their term life policy.

Well, Bob and John are now both 60. Is their health perfect? Probably not Best case, probably some high blood pressure, maybe some cholesterol issues. Their life insurance is up, and best case they have some health issues. Do they want to be out of insurance? Well, Bob’s policy isn’t renewable and convertible – so no matter what he wants, he’s done with life insurance. John on the other hand, has renewable and convertible term so he can drop the insurance if he chooses, or he can continue paying premiums (renewable) or he can exchange the term policy for permanent, lifetime coverage (conversion), both of which are done without any health considerations whatsoever.

Now take it to the extreme. Lets say both Bob and John have had a brush with cancer over the last 20 years. They’re both completely uninsurable. Now do they want insurance? They absolutely want it – probably as much as they can afford. But again, Bob’s policy isn’t renewable and convertible so he’s had cancer, his 20 year term policy is over, and he’ll never get life insurance again – even though he really wants it. John on the other hand, even though he’s had cancer, can either continue the term policy at higher premiums, or convert to a permanent lifetime policy – with no health considerations beyond what he was issued 20 years ago. That’s the airbags for your policy – if things go very very wrong, you’re going to want a term life insurance policy that is Renewable and Convertible. 

The summary of all this is, if you’re purchasing term life insurance, make sure it’s renewable and convertible. Otherwise, you may regret it in 20 years.