As you know, term insurance is the cheapest form of insurance that offers pure protection to its policyholder. All the premiums paid by you go towards the cost of insurance. It covers the risk to your life in the event of your death. A sum assured chosen by you as per your plan is paid out to your nominee in your absence to ensure the financial independence of your family.
Term insurance is not an investment and hence has no maturity or surrender value (in case discontinued after a certain period of time). The premium of a term insurance plan is the lowest among most life insurance plans available. Hence, it might be an affordable option for you, in the beginning of your career.
However, as you move ahead in life, increasing responsibilities might make you want to have the best of both worlds. Stay protected with insurance while also saving and building wealth in the long run. Now if you buy a new plan which fulfils both these conditions, later in life, not only will you lose out on the earlier pure term insurance plan, the new plan will turn out to be costlier given your age. This is because mortality charges of your policy only increase with age. This means the later in life you buy a policy, the higher would be the charges that you would end up paying. It’s a double whammy.
Rather, would it not be better if you could get an insurance policy that would give you the benefit of savings as well in the future, that too without paying higher mortality charges? This is where convertible term insurance comes in.
What are convertible term insurance then?
In a convertible term plan, the policyholder initially buys a pure term insurance policy, however, the catch here is that you have the option to later convert it into a plan of your choice.
You can switch your convertible term insurance policy to one that pays a lump sum after a specific period of time or on death. The other option is limited payment whole life insurance. This can be done during the period that the policy is active without paying extra charges. No fresh medical examination is required to facilitate this conversion. This is one of the advantages of buying a convertible term plan.
For instance, let us assume you bought a convertible term insurance policy for 30 years. After 5 years, you decide to convert to an endowment plan as a part of your plan. While your policy assumes all benefits and features of the new product, there is a caveat.
You will only be eligible for an endowment insurance plan with a maximum cover of your original term plan for the remaining tenure of the policy without undergoing any medical examination. Hence, you can only enjoy the benefits of the new endowment plan for next 25 years as a part of your convertible term insurance.
A convertible term plan lets you save more due to the flat premium structure of the term plan coupled with increasing mortality charges with age. It turns out to be much cheaper than buying a new endowment assurance plan later in life. However, you should buy such a policy only if you are certain you might change your decision in the near future. Know the difference between all types of insurance plans.
Or else, convertible term insurance will only lead to higher expenditure without any additional benefits. Also, if you are expecting higher returns, you might be disappointed in the long run. You might wonder if the returns are adequate as compared to other investment options in the market. A convertible term insurance policy may turn out to be an expensive affair after one reaches a certain age. With term plans getting cheaper by the day, especially when bought online, it is better to replace your existing term plan with a cheaper one instead.
Future Generali Flexi Online Term Plan provides life cover for Rs 1 crore for an 18-year-old non-smoker male for as low as Rs 16 per day. You can easily generate a quote online by filling in your personal details and know the premium that you would have to pay.
The application can be completed online within a few minutes by uploading a few necessary documents and paying your premium online. It is as simple as that to safeguard the future of you and your family.