What is convertible term assurance?

Convertible term assurance is a type of term policy that allows you to convert to a whole of life policy at the end of the policy term, without providing new medical information.

It’s also known as a ‘conversion option’ as part of a level term life insurance policy.

It gives you the flexibility to keep your life cover in place if your needs change in the future.

Key features of the conversion option:

  • Allows you to convert to longer-term cover without new underwriting
  • The sum assured (level of cover) remains the same but premiums will increase for the new cover
  • Only available on level term life insurance policies
  • Only available through some insurers

Choosing to have this option as part of your level term policy may increase your premiums.

Reassured, an award-winning and FCA-regulated life insurance broker, explains convertible term assurance in more detail in this article.

Please note: Most policies don’t come with the conversion option, including those arranged through Reassured.

Policies without added options tend to be cheaper (but are less flexible).

If you’re looking for affordable life cover, Reassured might be able to help.

We compare life insurance quotes from some of the UK’s largest providers, finding you the best deal we can offer.

Using our fee-free award-winning broker service, you can get quotes for:

  • Term life insurance
  • Decreasing term life insurance
  • Whole of life insurance
  • Over 50 insurance
  • Family income benefit

Secure life cover through Reassured from as little as 20p-a-day.

How does convertible term assurance work?

Convertible term assurance works by giving you the flexibility to convert your term life policy to a whole of life policy at the end of its term.

It’s also sometimes described as the ‘conversion option’ because it’s an added benefit to a standard term life insurance policy.

You can’t choose to have the conversion option at a later date, it must be something that’s included when your cover starts.

As you may know, standard term life insurance expires after a certain period of time (for example, after 20 years).

If there’s no death during this time, then the cover will simply expire and you’d need to obtain new cover.

However, if you have the conversion option included in your policy, then you could convert the term-based policy to a whole of life policy just before it expires.

Whole of life insurance provides cover until you pass away and a pay out is guaranteed to your loved ones.

What is term life insurance?

Term life insurance provides financial protection for your loved ones if you were to pass away unexpectedly during the term of the policy.

It pays out a fixed cash lump sum in the event of your death, which can be used to help cover:

  • Mortgage repayments or rent
  • Day to day family living costs
  • Outstanding debts in your name
  • An inheritance
  • Funeral costs

Term life insurance provides cover for a fixed amount of time, usually between 2 and 40 years.

Many people choose to have term cover in place while they’re supporting a family and paying off a mortgage.

The term length could mirror the length of your mortgage term or could last until your children are financially independent.

The cost of term life insurance is calculated based on your individual circumstances and the terms of the policy.

An insurer takes into account:

  • Your age, smoking status and medical history
  • The level of cover needed
  • The length of the policy term

Secure term life insurance through Reassured from as little as 20p-a-day.

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Calculate how much life insurance you may need by filling in the costs you’d like your policy to cover.

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£137,934 is the estimated mortgage debt per household in the UK.

The purchase of a home is likely to be the largest financial commitment any of us will make in our lifetime. Your life insurance should cover your remaining mortgage balance to allow your loved ones to stay in the family home should anything happen to you.

Source: Moneynerd.co.uk

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The average monthly household budget in the UK is £2,548 (that’s £30,576 per year), which is spent on transport, food & drink, utilities (gas, electricity, water etc), clothing, council tax and leisure activities.

With energy prices hitting a record high and the cost of living rising sharply in the UK, you may wish to factor in utility bills and family living expenses into your cover.

Source: Nimblefins.co.uk

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The average personal debt of UK adults has risen to £34,566 (not including mortgage debt), with credit cards, personal loans and overdrafts being the most common forms of debt.

Factoring in any debts into your life insurance cover means that, if they need to be paid back from your estate after your passing, your loved ones won’t miss out financially.

Source: Money.co.uk

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According to SunLife, the average cost of a funeral in the UK is £3,953 (with the overall cost of dying at £9,200).

Funeral costs have increased by 116% since 2004 and are a significant cost which should be factored into the amount of life insurance you secure.

Source: SunLife.co.uk

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When factoring in cover for your children, you may wish to calculate the amount based on how long it is until they reach financial independence.

This could include childcare (£7,000 per year for part-time care), school expenses (£1,519 per school year for uniforms, lunches, stationary etc), as well as an additional sum for further education (this could be a contribution of up to £5,000 per year).

Sources: Daynurseries.co.uk, Primarytimes.co.uk & Savethestudent.org

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2 in 5 adults say they are relying on an inheritance to fund their retirement.

Factoring in an inheritance to your sum assured could allow loved ones to live a more financially comfortable life. Alternatively, you could leave a cash gift to a charity of your choosing.

Source: Moneyage.co.uk

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If you’re lucky enough to have your own savings or are part of the 30% of UK residents who already have a life insurance policy in place, this can provide financial protection for loved ones.

By entering your current cover, savings or death in service amount you can reduce the sum assured you require.

Source: Scottishbusinessnews.net

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Cost of convertible term assurance

As mentioned, convertible term assurance is essentially term life insurance with an added benefit.

Having added benefits will increase the cost of your monthly life insurance premium.

If you choose to convert at the end of the policy term, then the cost of your new cover will depend on the insurer and what they take into account at the time of conversion.

Typically, your age and the details of the new policy will determine the cost.

However, some insurers also consider your smoking status and/or your health, which could really bump up your premiums.

As mentioned, Reassured cannot arrange convertible term cover, but we can arrange standard term cover from as little as 20p-a-day, get in touch to see if we can help you save money on your premiums.

When can cover be converted?

The insurer may provide specific dates as to when you can use the conversion option on the policy.

To be eligible, all your premium payments must be paid on time throughout the policy term and you must utilise the conversion option within the time period stated in your policy terms and conditions.

Once your policy has expired, the conversion option will no longer be available.

Convertible term life insurance pros and cons

These are the pros and cons of having the conversion option as part of your policy:

PROs CONs
Flexibility to continue your life cover if your circumstances change May increase the monthly premium for your term life cover
May not need to provide further medical or health information to transfer to a whole of life policy Can’t change the sum assured (level of cover) when converting and there may be a maximum level of cover that you can covert
New premium is calculated based on your age at conversion, and usually based on your health status when taking out the existing term policy Value of the policy may depreciate over the years, depending on the term length and level of cover
Could be cheaper than taking out a new whole of life policy at an older age (and perhaps, worsened health) With some insurers, you can’t have more than one added benefit. For example, you can’t have the conversion option on a policy with critical illness cover
Whole of life provides a guaranteed cash pay out to loved ones when you pass away Minimum policy term may apply, for example, term length must be more than 5 years

What’s the difference between convertible term and renewable term assurance?

Convertible term and renewable term assurance are both options that can be added to a term life insurance policy.

Whilst the conversion option allows you to convert the existing policy to a different policy (whole of life), the renewable option allows you to extend the existing policy.

This means when the term-based policy comes to an end, you can extend the term length instead of arranging new cover. The renewable option can usually be used more than just once.

With both options, you usually won’t need to provide any new medical information when the time comes to secure the new cover.

Typically, you can’t have convertible term and renewable term options included under one policy.

As mentioned previously, Reassured are unable to provide policies with convertible term and/or renewable term options.

Convertible term assurance vs whole of life insurance

You may think, why not just take out whole of life insurance in the first place?

Well, whole of life insurance is generally more expensive than term life insurance with the conversion option.

This is because whole of life is exactly what it says, cover for the whole of your life and guarantees to pay out to your loved ones when you pass away.

Taking out a whole life policy initially whilst your still fairly young means paying a higher premium for a longer amount of time (and up until you pass away).

If you’re young and healthy, then term life insurance with the conversion option can provide affordable protection whilst your family may need it the most, with the flexibility to convert to whole of life later on, which guarantees to pay out (perhaps providing loved ones with an inheritance).

For example, if you’ve become seriously ill and your term life cover is about to expire, then having the option to switch to a whole of life policy would be extremely valuable.

You may not need to disclose that you have a new illness and you’ll have peace of mind that your loved ones are protected no matter what.

As mentioned, Reassured can’t provide quotes for convertible term assurance but we can provide quotes for whole of life insurance.

Key features of whole of life insurance:

  • Guarantees to pay out to loved ones when you pass away
  • Fixed sum assured (level of cover) up to £1,000,000
  • Can be suited to those in the later stages of life who are still in good health
  • Requires medical and health information
  • Can be used to provide an inheritance, to help reduce inheritance tax and help cover funeral costs

Get in touch with our award-winning team for your free, no-obligation life cover quotes.

Zurich convertible term assurance

The insurer Zurich can provide convertible term assurance (they call it ‘convertible term life insurance’).

The cost of this cover through them will depend on several factors including the level of cover you need, as well as your age and life expectancy.

Reassured can’t compare quotes for Zurich convertible term life insurance but we can compare quotes for Zurich whole of life insurance.

We can also compare their whole of life quotes with other insurers to help you find a good deal.

The convertible term assurance policy review

The final review for convertible term assurance is that it could be a worthwhile benefit, depending on your circumstances and your budget.

It does mean you could be paying life insurance premiums for a significant proportion of your life, which is something to consider.

Some people may wait until later in life to take out whole of life insurance, but then they risk paying higher premiums if they develop any illnesses at all during their lifetime.

Also, one other thing to consider is that convertible term assurance is only available through a limited number of insurers, which means you won’t have the advantage of comparing multiple quotes to find the most suitable cover.

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At Reassured, we believe taking out family life insurance is one of the best decisions you can make, as you never know what’s around the corner.

Life insurance can give you peace of mind that your loved ones have a financial safety net if the worst were to happen to you.

We’re an FCA-regulated broker with over 10 years’ experience finding affordable financial protection for UK families.

Contact our award-winning team for your free life insurance quotes (or simply if you have a question to ask regarding your options), we’re here to help.

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