Understanding Conversion Privilege in Insurance

Conversion privilege is a life insurance term that outlines your rights as a policyholder to transition to a new policy without undergoing a physical exam. For those who’ve experienced health changes since taking out their original policy, this is a great benefit. You never know when a physical condition or ailment will start, so choosing an insurance product with conversion options is a wise choice to protect yourself long-term. Learn more about how it works and what to expect in this helpful guide.

What is Conversion Privilege?

One of the most common places to see insurance conversion privilege is on employer-sponsored life insurance plans. The employee can convert the plan from an employer-sponsored policy to an individual life insurance policy without undergoing the underwriting process, which often involves a physical exam.

In these situations, the life insurance company extends the coverage with the knowledge that the individual was already approved for the group life policy. Depending on the policy, timelines for when you convert it and other factors, you might retain the group discount despite converting the policy.

For consideration, you’ll need to notify the insurance company within 31 days of leaving the employer. Waiting longer than that will likely mean you have to undergo the approval process, which might include a physical exam.

Another common situation when policyholders take advantage of conversion options with life insurance is with term life insurance. At the end of the term, many insurance companies offer a renewal term, which is generally less expensive than going back through underwriting at your current age. 

You can also convert a term policy into a permanent policy, which will offer coverage for the rest of the policyholder’s life. Some people take advantage of this when they are diagnosed with a serious illness during a policy’s term to provide lifetime coverage despite the diagnosis and avoid a physical exam.

How Does Insurance Conversion Privilege Work?

Conversion privilege in insurance comes with specific terms and conditions. You’ll need to follow these rules and regulations carefully. Each policy will have its nuances, but the key is to review the type of policy you have and what you’re planning to convert it to. Here are some details about how various conversion scenarios work.

Group (Employer-Sponsored) to Individual Life Insurance

When you leave an employer, you’ll likely have a chance to convert your employer-sponsored (or group) life insurance plan to an individual life insurance plan. Your health at the time of conversion should not matter. For those with chronic or serious illnesses, this is the best way to get life insurance coverage as the qualification process is not as stringent in most cases. So once you have a group life insurance policy, avoid losing it by converting it.

To be eligible to convert the policy, you must notify the life insurance company within 31 days of leaving your employer in most cases. Talk to your employer about how to convert your policy or go to the insurance company directly to learn more as soon as possible.

Term Policy Extension

Most term life insurance is good for 30 years, though there are other options as well. At the end of the term, you can often extend the policy at better rates than you could get if you were to start the process anew based on your current age and health. You might have options for how many years you want to extend the policy.

Term to Permanent Life Insurance

When your term life insurance policy is coming to a close, your insurance company might reach out to you about converting it to a permanent policy. Or you can reach out to your insurance agent directly to learn more about your conversion options.

You’ll want to start this process before the policy term ends because, once your policy ends, you might not be eligible for conversion.

Benefits of Conversion Privilege

Life insurance that includes a conversion privilege offers many perks and benefits. Here’s a look at reasons to exercise this privilege.

• Provides life insurance at lower rates than if you were to start the process fresh
• Can help protect your finances even after you develop conditions or serious illnesses that would prevent you from obtaining life insurance
• Might be able to secure individual life insurance at group rates if converting from an employer-sponsored plan
• Helps adjust life insurance to permanent coverage that pays for itself to provide a minimum death benefit
• Protects your insurability without the need to undergo a physical exam
• Use term to permanent life insurance conversion to get access to cash value and estate planning

How Much Does an Insurance With a Conversion Privilege Cost?

The cost of an insurance policy with a conversion privilege varies based on many financial factors.

• The death benefit the policy provides
• Length of the policy term
• Your health and age at the time you originally purchased the policy
• The type of policy you’re converting to

You won’t pay more to have a conversion privilege added to a policy. The cost comes into place when deciding whether a conversion or shopping around other insurance companies is better for you. Converting a policy might be too restrictive based on your needs.

Factors to Consider Before Exercising Conversion Privilege

As you evaluate whether to exercise your conversion privilege or to receive life insurance quotes elsewhere, review these factors:

• Age
• Health (preexisting conditions, diagnoses or ailments)
• Financial status
• Coverage needs
• Conversion deadline
• Conversion options
• Policy type
• Death benefit provided
• Term versus permanent options

Securing Life Insurance Without a Physical Exam

The best thing about a life insurance policy with conversion options is that you can get a policy at lower rates than you would if you were to undergo underwriting at your current age and health status. Before allowing a life insurance policy to expire or lapse, review your conversion options.

Frequently Asked Questions