What to know about convertible & renewable term insurance

Life insurance is one way to care for your loved ones after you pass away. The financial reassurance it provides can help your family carry on with the life you built together.

You'll need to first decide between the two major categories of life insurance types: term life insurance and permanent life insurance. Term life insurance covers you for a specific period of time, usually between 10 and 30 years. Permanent coverage lasts for your lifetime as long as you pay the premiums and the contract stays in force.

In essence, term coverage will end while permanent coverage shouldn't—but by considering renewable and/or convertible types of term life insurance, you can find more flexibility in your life insurance choice.

Renewable life insurance describes a feature specific to term life insurance—you sometimes can build a renewability clause into your term life insurance contract. So, when a term contract ends, you could renew for another term increment without having to undergo another round of medical review. This ultimately depends on the insurance agency and contract features. For example, at Thrivent, most contracts are renewable, but some are not. It depends on issue age and length of the term contract; it is not an additional feature the purchaser can choose to add. When renewability exists, coverage will continue after the term period up to age 95.

This comes in handy if your health were to have declined within your initial term as you wouldn't be denied another term of coverage for insurability. In exchange, you typically would need to pay a higher premium as the insurer is taking on more risk.

You also may be able to have a convertibility clause in your term life insurance contract, giving you the option to turn it into permanent coverage at renewal time or at certain milestones within the term. As term life insurance tends to be more affordable, you may have initially chosen it because you were budgeting tightly and had other mid-life expenses like a mortgage or raising kids. But perhaps you're ready to commit to permanent life insurance or looking for one of its landmark features—tapping into its cash value. At Thrivent, all term policies are convertible within the first 5 years of the contract. There's also an extended conversion feature that allows for clients to convert up to age 70, or the length of their term (whichever is sooner).

Like the renewability feature, you won't need new medical underwriting to convert the contract, which means it won't matter if your health has worsened. You get to maintain your coverage and get upgraded benefits, though it'll also come with a higher premium.

Both renewal and conversion clauses may increase your premium amount because they increase the insurance company's risk and cost—they potentially will be insuring you when you are in worse health.

Convertible insurance tends to be more expensive than equitable renewable term coverage even if they have the same death benefit amount. That's because when you convert your contract, you'll be upgrading to a permanent insurance contract, which has significant perks over term life insurance—your premiums won't go up over time, it'll last the rest of your life, you won't need more health exams and you'll probably have some sort of cash value component.

You generally need to renew or convert your term contract before you reach a specified age, often around age 65 to 70. If you don't, your term life insurance contract will terminate at the current term's end. You usually can choose a similar initial policy term regardless of whether you choose convertible or renewable or both.

Convertible policies allow you to obtain a permanent contract that will remain in effect indefinitely. Renewable term policies may only be extendable for a limited period of time, and that time period becomes shorter the older you are when you renew. Someone who is 40 may be able to renew for an additional 30 years, but someone who is 70 might be limited to a 10-year renewal term, for instance.

• Avoid underwriting. You can renew your contract without going through a new medical exam or answering health questions. Your contract can't be denied even if you have developed a new condition or your health has become worse.
• Flexible coverage. You can let your contract expire if you no longer need it or keep it in force. Some contracts even allow you to reduce your coverage if you don't need as much.
• Convenience. You won't have to shop around or fill out new applications.

• Rising premiums. Your premium will increase based on your age at renewal.
• No cash value. Term policies do not build cash value.
• Limited time period. You may not be able to extend your contract for as long as you'd like. Many policies will cap coverage to a maximum age.

• Avoid underwriting. As with renewable term, convertible term allows you to exchange your term policy for a permanent one without having to go through underwriting again.
• Builds cash value. In addition to providing a death benefit, permanent life insurance builds a cash value.
• Permanent coverage. Convertible term allows you to obtain permanent coverage that you can keep when you may no longer qualify for a term contract.

• Higher premiums. Convertible term is more expensive than renewable term insurance and term insurance without a convertibility clause.
• Limited conversion period. Your contract will limit the period during which you can convert. This may be before a certain age, or within a certain number of years from the time you purchase your contract.
• Limited options. There are many different types of permanent insurance. Your contract may only allow you to convert to a single type or provide limited options when it comes to riders or contract features.

Both of these term life insurance options initially provide lower-cost coverage than a permanent policy, with the flexibility to extend your coverage later. Choosing one or both of these depends on your life insurance needs.

• You may consider a convertible policy if you want the option to maintain coverage beyond the age limit for renewing a term policy but don't want to pay for permanent insurance now. However, this option is more expensive than renewable term.
• You may consider a renewable term policy if you aren't sure if you'll still require the same coverage at the end of your contract term. You also may prefer a lower premium to growing a cash balance as that can allow you to build other savings.

Trying to speculate which life insurance options are going to work best for you and your family isn't simple. Your local Thrivent financial advisor has the expertise to dig into your personal situation and factor in your needs and values to help you land on the best option.