A Proper Conversion

[Welcome Insurance Forums readers!]

We write a lot about health insurance here at IB, but we're far from one-trick ponies. Although life insurance is (generally) a much less controversial topic, and the product has fewer moving parts (and, of course, just the one claim), it's no less important, and has its own set of potential pitfalls.

Case in point:

A few weeks ago, I received a phone call from a woman who was referred to me by another agent. She was looking for help in dealing with her father's life insurance.

Years ago, Larry (her father) [ed: not his real name, of course] bought a 15 year level term policy. Like many (most?) people, he knew that he'd only need the coverage until he retired: by that time, of course, his mortgage would be retired, his kids grown up and settled, his 401(k) fully funded, etc.

(Term insurance has been likened to "renting;" that is, one buys pure protection, with no cash accumulation and a limit on how long the premiums stay the same)

A few years ago, he re-financed his house (better rates, don't you know) and bought a new car. Again, he bought into the conventional wisdom, and assumed that, worst case, he'd simply buy another 15 year policy "down the road."

One of our colleagues (and a frequent commenter here) is fond of pointing out that "we buy most things with our money, but we buy insurance with our health."

How true:

Four years ago, Larry suffered a series of strokes, each one worse than the last. He also suffers from COPD, high blood pressure and cholesterol and (of course!) he still smokes the occasional cigar. Next month, the 15 year lock-in goes away, and he is faced with paying quickly escalating annual renewable term premiums (that's what happens at the end of the level term period). Now age 67, with a litany of physical impairments, what are his choices?

Yes, there are carriers that specialize in these cases, and we looked into those. As one might expect, the offers that resulted were, um, less than appealing.

Which left, what?

You guessed it: the much-maligned and oft-overlooked conversion privilege. This is a clause (usually included at no extra charge) that guarantees one the right to change (convert) one's policy to a permanent form of insurance if one so chooses. This is sort of "insurance on the insurance," assuring that one can keep some affordable coverage even if one's health declines.

After consulting with the carrier (which, happily, I also represent), we determined that we could convert much of his existing coverage to a permanent (I prefer whole life, others UL) plan, with guaranteed premiums and coverage.

Because life is full of surprises.