The “conversion privilege” in the context of life insurance refers to a provision that allows the policyholder to convert their existing policy from one type to another without undergoing a new medical examination or providing additional evidence of insurability. This feature is particularly common in term life insurance policies, where it permits the policyholder to convert their term policy into a permanent life insurance policy, such as whole life or universal life insurance, within a specified period and under certain conditions outlined in the original policy. It applies to converting individual term insurance to permanent coverage, and to converting group life insurance to an individual policy when you leave a group plan (see “term conversion” and “group insurance”).
Key aspects of the conversion privilege include:
Guaranteed convertibility
This privilege ensures that the policyholder can convert their policy regardless of any changes in their health status since the original policy was issued. It provides a valuable safeguard against the risk of becoming uninsurable in the future.
Conversion period
There is typically a set period during which conversion is allowed, often before the term policy reaches its expiry date or the policyholder reaches a certain age. When group coverage ends, conversion must be made within the time set by the policy and provincial law.
No medical exam required
The most significant advantage of the conversion privilege is that the policyholder does not need to undergo a new medical examination or provide further evidence of their health status, making the process straightforward and guaranteed.
Change in premiums
Upon conversion, the premiums will generally increase to reflect the new type of policy and the policyholder’s age at the time of conversion, but not their health condition.
Permanent coverage
Converting to a permanent policy provides lifelong coverage as long as premiums are paid, along with other benefits such as cash value accumulation, which are not typically available with term insurance.