A Term Life Insurance Conversion Credit is a break given to people converting their term insurance to permanent insurance. It is up to the insurance company whether to offer a conversion credit on certain term policies. If conversion credit is offered, when the insured person converts their term policy to a universal life or whole life, the premium for the first year of their new policy will be reduced by a credit based on the amount of term premium that was paid that year.
A conversion credit is a discount on premiums due on a permanent life insurance policy upon conversion.
For example, if you have a term life insurance policy that has a $500 annual premium and to convert the policy to a permanent policy that has a premium if $5,000 per year, you will only owe the insurance company $4,500 in the first year you convert providing the insurance company offers a credit equal to the annual term premium.
Credits are typically offered only in the year of conversion and generally are the amount of one year's worth of term insurance premium.
A Term Life Insurance conversion credit is a deduction taken from your first year's premium when you convert your Term policy to a Permanent one. Not all Term policies offer that feature when you convert your Term to Universal Life or Whole Life, but it is nice when they do.
Term life policies that have an option to convert term life to whole life or even in some cases universal life are designed to protect a person's insurability. Not all term life policies have this feature. Simply put it allows a person who purchases a lower premium term life plan the option to convert to permanent whole life insurance without proof of insurability. Several companies offer this feature every at 5 years for up to 20 years. It is a generous feature for those insureds diagnosed with an injury or illness rendering them uninsurable for life insurance.
Business Development Officer, T.D. McNeil Insurance Services, Fresno, California
A term life credit reduces the first year’s premium when you convert from term insurance to whole life. It is an inducement to make the conversion. I am not sure how the company accounts for this money but I do know that it makes the decision easier for some. You can find out if your term policy has this feature by contacting the company.
Robert J Russell - Finalist for Broker of the Year 2015
Broker Owner, InsuranceAgentsSelling.com, United States (Most States)
You are basically upgrading to a permanent policy. The upgrade to a permanent coverage is done based on the health status of the policyholder when he got the term life insurance and not his current health condition. Thus, conversion becomes a good option for those who were originally in the best of health but whose health levels have deteriorated over the years. With the benefit of life insurance conversion, you don’t have to provide evidence of insurability, allowing you to fork out the same premiums that any person of your age who is in excellent health would pay.
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For example, if you have a term life insurance policy that has a $500 annual premium and to convert the policy to a permanent policy that has a premium if $5,000 per year, you will only owe the insurance company $4,500 in the first year you convert providing the insurance company offers a credit equal to the annual term premium.
Credits are typically offered only in the year of conversion and generally are the amount of one year's worth of term insurance premium.