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Handy Guide to Buying Convertible Term Insurance Plan

A term insurance plan is one of the cheapest forms of insurance, which offers complete protection to the policyholder. The premiums paid by the policyholder go towards the price of insurance. The sum assured chosen by the policyholder will be paid out to the nominee in case of untimely demise and ensures the financial independence of the family.

With time, you also tend to move ahead in life with more responsibilities. At a certain stage of life, you will realize that protection is important and in the long run building wealth as well. Now, what if you purchase a new plan, which executes both of these conditions.

Well, you will lose on the earlier term plan but also the new plan will be more expensive given the age. This will happen because of the mortality charges of the policy increase with the age. This essentially means that the late you buy a policy you will end up paying the high charges. Therefore, it is advisable to buy the insurance plan that would give the benefit of both future as well as saving and you will not end up paying higher charges of mortality. This is exactly when a convertible term insurance plan comes into the picture.

What is the Convertible Term Insurance Plan?

When it comes to the convertible term insurance plan, it is somewhat like a term plan the only catch within such a plan is that the policyholder has an alternative to convert it into the plan of your preference.

You can easily switch the convertible term insurance plan to the one, which pays a lump sum after a certain period or demise. The other alternative is limited payment whole life insurance. Now, it can be done within the active policy period and not paying any extra charges. To facilitate this conversion, no medical test is generally required. This is one of the key advantages of a convertible term insurance plan.

For instance, you bought the convertible term insurance plan for thirty years. Now, after five years, you decide to convert the plan into an endowment plan as part of your plan. While the plan assumes all advantages and features of a new product, there is the caveat. You will be entitled to an endowment plan with the maximum cover of the original term without undergoing any clinical examination for the remaining policy term. This means that you can enjoy the benefits of the endowment pan for the coming twenty-five years as part of the convertible term insurance plan.

When buying a convertible term insurance plan listed below are some pointers that should be considered:

  • Availability: The convertible term insurance plans are not that easily accessible in the Indian market. As the market is not flooded with many options, therefore selecting the right plan and the choices also remain limited.
  • Premiums: The convertible term insurance plan premium is higher than for a normal term life insurance plan. The reason behind higher premiums is the promise of the maturity benefit that is equating the sum assured when the conversion alternative is exercised.
  • Conversion: If your insurance plan permits the conversion at any point in time during the plan period then it is advisable to convert the plan at the later date that is when the maturity is nearby.

What are the Features of Convertible Term Insurance Plans?

Listed below are some of the key features of a convertible term life insurance plans:

  • The convertible term insurance premium is determined at the initiation of the plan. Even after the conversion, the premium will remain the same; however, the benefits might change.
  • In a term insurance plan, at the maturity of the policy, no benefit is paid. However, when it is converted to an endowment plan then the policyholder, is entitled to claim maturity benefit too.
  • An assessment of peril, which is also referred to as underwriting is conducted by the insurance company when the plan is being purchased. During the time of the conversion of the policy, no new underwriting is required.
  • The convertible term insurance plan offers tax benefits to the policyholders. The premiums that are paid within the plan remains tax exempted up to Rs 1.5 lakh within Section 80C. On the other hand, the benefit that is received at maturity or demise also remains tax exempted within Section 10(10D).

How Important is the Two-in-One Benefit?

Now, possible you might be pondering whether a convertible term life insurance plan is beneficial or not. Then do not stress your self, buying a convertible term insurance plan is beneficial.

When it comes to a convertible term insurance plan it combines the advantages of two essential life insurance plans that are endowment assurance and insurance. On one hand, a term insurance plan offers an optimal life insurance coverage security and on the other hand, an endowment assurance plan offers the maturity benefit and savings. This means that you obtain double benefits from a convertible term insurance plan and the premiums are also pocket-friendly.

The convertible term insurance plan is most suitable if you wish to have a maturity benefit out of the term plan rather than the paid return of premiums. You can easily run the plan as the term insurance plan and as you see maturity approaching and if you are alive then easily you may convert the plan that will ensure that you receive the benefit upon maturity.

The Bottom Line

The conversion term insurance plans are one such plan that is not commonly available in the market.

In any case, you plan to buy one such plan, then conduct research and take an in-depth understanding of the products features, benefits, premium rates and the conversion conditions.

Buy the conversion term life insurance plan if it suits you and fulfils your requirements.

Written By: PolicyBazaar - Updated: 06 October 2020
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Disclaimer: Policybazaar does not endorse, rate or recommend any particular insurer or insurance product offered by an insurer.
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