Convertible Term Life Assurance Explained

Hi Nick,

I read about convertible term life assurance in your email crash course and also did a bit of  background reading on it but I’m still unsure. Should I go for a shorter term cover or longer term cover?

Any pointers to help me decide?

Regards,
Eamonn

Thanks for the question Eamonn.

Before we get into the nuts and bolts, you might want to read one or both of these older posts, I’ll wait here for you..

The Power of Convertible Term Insurance (Return of the Mack!)

Convertible Life Insurance – Are you comparing like with like?

All done?

Good, let’s go through the pros and cons of convertible term life assurance.

Pros of Convertible Term Life Assurance

• It costs less to begin with

Let’s take a simple example using Eamonn’s details (40 year old, non smoker).

€250,000 life assurance over 25 years will cost €35 per month
€250,000 convertible term life assurance over 10 years will cost €24 (savings of around 32%)

• You can buy more cover for the same price

Again using the details above.

Let’s say Eamonn’s budget is €35, he can buy €250,000 over 25 years for €35
For the same price, he can buy €375,000 convertible term life assurance over 10 years. ( an extra €125k)

• Forces you to review your cover

Most of us buy life insurance and forget about it. If you buy a 10 year convertible plan, you will have to review your cover in 10 years when your personal circumstances will be very different.

You’ll need less cover in the future as you’ll be closer to retirement (fewer years of income to replace) so you’ll be able to reduce your amount of cover

• Cover may be cheaper in the future

This one could be wildly optimistic but who knows, we may find a cure for cancer and we’ll all live a lot longer. If people live longer, the price of life assurance will fall.

Cons of Convertible Term Life Assurance

• Long term it will cost more (arguably)

Back to Eamonn.

Over 25 years, he will pay €35 per month giving a total premium of €10,500

If he uses the convertible option:

He will pay €24 per month for the first 10 years = total premium of €2880
Let’s fast forward 10 years.
Based on today’s prices, if he buys a 15 year policy when he’s 10 years older, it will cost him €70 per month.
Over 15 years, paying €70 per month will cost €12,600
Add this to the €2880 gives a total of €15,480

This is 50% more than he will pay if he buys a 25 year term.

But….there’s always a but…

In 10 years time, Eamonn won’t need €250,000 cover so can reduce his cover to lower his premium.

What do I think?

If you can afford the longer term cover then go for it but if you have young kids and your budget is tight then convertible term cover is for you because it allows you to buy more cover when you need it most.

Just remember you will face a hike in premiums in 10 years but in 10 years the crèche fees will be gone so you’ll be minted!

Over to you..

There’s a lot of figures up there, if that makes you head melt, give me a call and we can discuss your own situation. I’m at 05793 20836. Alternatively, complete the short form below and I’ll be right back.

Nick McGowan
LION.ie | The Life Insurance Experts