Want to Buy an Insurance Plan? Go for the Convertible Term Insurance Plan

A term insurance policy acts as a financial parachute for your loved ones to glide in the face of any unfortunate event. Moreover, they are available in a wide range of options. There are plans with decreasing term insurance, increasing term insurance, premium return policies, and monthly income policies. A convertible term insurance plan is one such term plan variant. It is a term insurance policy that can be transformed into a different life insurance policy, giving you two benefits. Let's have a look to learn more about the policy.

What is a Convertible Term Insurance Policy?

A term plan covers the policyholder for a set length of time at a pre-defined sum assured, which is only paid out in the event of the life assured's death. A convertible term plan is simply a conventional term plan with the option to convert to a different term insurance plan in the future. Suppose you wish to convert your term insurance plan to a whole life term insurance plan or an endowment plan after 7 years; you can do so with convertible plans. However, it must be noted that the terms, conditions and rules for doing so may differ from one insurance plan to the next and from one provider to the next. 

Features of a Convertible Term Insurance Policy?

Here are some features of a convertible term insurance plan which highlights its utility. 

• Policy Conversion

The conversion option is integrated into some convertible term life plans, while conversion is available as an add-on feature in others. Moreover, only when the policyholder makes a formal request to the insurance company does transformation occur. The company can't use the conversion option at its discretion. So, if the policyholder does not seek conversion, the plan remains a term insurance policy that terminates either on the life assured's death or on the plan's maturity date.

• Same Premiums

Premiums are calculated using the life assured's age, and the plan's sum assured, premium paying frequency and policy term. Moreover, premiums are set at the beginning of the plan and do not alter. So, when a policyholder uses the conversion option, the policy and benefits structure changes, but the premiums stay the same. 

• Payable Benefits

Only a death benefit is usually payable when the convertible plan is a term life insurance plan. However, the plan gains a maturity benefit as well as a death benefit when it is converted to an endowment policy. 

• Tax Benefits

There are tax advantages to convertible term insurance contracts. Section 80C of the Income Tax Act exempts the premium paid for the policy from income tax, while Section 10(10D) exempts the maturity or death benefits received by the life assured or the nominee from taxes.  Although the Section 80C exemption has a maximum limit of Rs.1.5 lakhs, the Section 10(10D) exemption has no such limit.  

How is a Convertible Term Insurance Plan Useful?

A convertible term life insurance policy combines the advantages of both term and endowment life insurance policies. While a term life insurance plan guarantees the best life insurance coverage, an endowment plan guarantees savings as well as a maturity payout. As a result, a convertible term life insurance plan provides you with a double benefit. Convertible term life insurance policies are appropriate if you want an excellent maturity benefit instead of a return of premiums paid from your term insurance plan. You can maintain the plan as a term insurance policy and then convert it as maturity approaches while still living to ensure that you receive a payout.

Endnotes

In the Indian insurance industry, convertible term life insurance plans are not widely accessible. There are only a few plans available, which means your options are limited. So, if you're considering purchasing a convertible term insurance policy, research the plan's characteristics, conversion terms, and premium prices. Moreover, you can even consult an insurance agent to check if the plan is right for you before purchasing it.

Also read 

What Should You Know About Paying Term Insurance Premium?

How Can a Rider Make Your Term Insurance Plan More Efficient?

Disclaimer: This article is issued in the general public interest and meant for general information purposes only. Readers are advised not to rely on the contents of the article as conclusive in nature and should research further or consult an expert in this regard.