Convertible Term Assurance is a term assurance policy with the option to convert before expiry into a qualifying whole life or endowment or, with some policies, a level term or a further convertible term assurance policy.
Examples of Use
A young person with the need for life cover and who has limited resources and unknown future requirements or commitments.
Protection for a potential renewable loan facility and also business protection (sometimes what is known as keyperson insurance).
Someone who requires cover at low cost, with guaranteed insurability to convert to a longer-term contract if required.
The policyholder cannot be refused the right to take out a new policy or charged a higher premium at conversion for health reasons.
It provides protection for those persons who will lose financially by the death of the life assured.
It is a cheap form of life insurance until the conversion is effected.
The policy offers flexibility and it can be converted at any stage within the original policy term without further charge or medical evidence.
It can convert to endowment if the client requires a savings vehicle or it can convert to a whole or life for a longer term protection contract.
The policy has no value on surrender or at the end of the policy term, unless converted to a policy with an investment element
Medical evidence is required at the outset and the cost of cover may be expensive or unavailable for those in poor health.
It does not pay out on illness of the life assured.
The company used should also be competitive for endowment/whole of life cover.
Although the conversion right is available regardless of health, other factors e.g. occupation change can affect the premium rate.
Points of Interest
Used by those who require cover at low cost initially and may want to convert to a longer term contract.
Usually set up under Trust or on what is known as a “life of another” basis. This ensures that for most individuals the benefits are in the right hands at the right time.
Arrangements that include critical illness can be considered. This will pay out the sum assured if the life assured has a terminal illness with a predetermined number of months to live.
If written on a “life of another” basis there would be ownership implications on conversion.
If the conversion option is not exercised before end of term, the policy will simply cease and the right to convert is lost.
Your home may be repossessed if you do not keep up the repayments on your mortgage or any other debt secured on it. To
understand the features and risks of lifetime mortgages and home reversion plans ask us for a personalised illustration.