Life Insurance Conversion Privilege

What is life insurance conversion privilege, and how does it affect policyholders and their beneficiaries? Find out from the life insurance lawyers at Boonswang Law, who have gotten beneficiary clients paid in every state in the nation when life insurance companies delay or deny claims for death benefits.

If the life insurance company denied your claim for death benefits due to lapse, termination, or failure to convert, call us. Often the lapse in coverage was no fault of the policyholder, and in those cases, we can get you paid. Call us to discuss your case, free of charge!

Life Insurance Conversion Privilege Definition

In general, “conversion privilege” in life insurance is a policyholder’s right to convert a life insurance policy from one type to another without submitting to a medical exam or completing a new application. Conversion privilege may also guarantee the amount the policyholder pays in premiums for coverage under the new life insurance policy. Some policies may also refer to this as a “guaranteed insurability option”.

Types of Life Insurance Conversions

Group to Individual Life Insurance

By far, the most common type of conversion carrying privilege is when an employee or former employee converts their group life insurance coverage through their employer to an individual policy. Conversion privilege guarantees individual coverage regardless of the policyholder’s health, and guarantees premium payments for a specified number of years.

Term to Permanent Life Insurance

Term life insurance is the least expensive insurance someone can purchase because it provides coverage for a set number of years, called the “term,” then expires. If a policyholder wishes to renew their coverage once the term expires, chances are that their premium payment will increase because they have aged and there is greater risk they will die within the policy term.

If a term life insurance policy carries conversion privilege, the policyholder has the option to convert the policy to permanent life insurance without submitting to a medical exam. This option allows a policyholder to maintain coverage even if they suffer health problems near the end of the term.

Conversion privilege in a term life insurance policy will likely have an expiration date, and once the policyholder converts to a permanent policy they will likely pay more in premiums. However, conversion privilege gives a policyholder with health problems the option of maintaining life insurance. If they had to apply for a new policy, their coverage might get denied due to their present health.

There are many types of permanent life insurance, but most commonly they are called “universal” or “whole” policies. 

Life Insurance Conversion Privilege Requirements

In order to convert a life insurance policy, the policyholder must strictly adhere to the terms of the provision in the policy itself. This provision will set forth the required documents, timeline, and due date, which will vary among policies.

If a policyholder fails to comply with the requirements set forth in the conversion privilege provision, they risk losing life insurance coverage. This might be a problem if the policyholder does not have multiple life insurance policies, but chances are the policyholder purchased this coverage for a reason, and unless that reason dissipated, they must carefully follow directions to convert their policy effectively.

Employer Obligations Concerning Life Insurance Conversions

Providing a Policy to the Insured

Federal ERISA law governs employer-provided group life insurance coverage, whether entirely subsidized by the employer or paid in part by the employee. Under ERISA, an employer must provide covered employees with a copy of the policy itself and inform them of the right to purchase accidental death and dismemberment coverage (AD&D coverage) as a rider.

Inform Insured of Conversion & Portability Rights

An employer has a duty to tell a covered employee of their right to continue coverage should they leave employment, and how to do so, in writing. They also must inform them of their right to apply for a waiver of life insurance premium for disability, if they become disabled.

Provide Information on Policy Changes

If any aspect of life insurance coverage changes, the employer must provide notice of that change in writing to all coverage employees.

Should You Convert Your Life Insurance?

Whether you are seeking to convert employer-provided group life insurance coverage to an individual policy, or someone holding a term life insurance policy who is considering converting to a permanent life insurance policy, there are several aspects of coverage to weigh in making your decision.

First, do you need life insurance after you leave your job or your term life insurance coverage expires? If you do, you will either need to convert your existing life insurance coverage or purchase a new policy.

Second, consider whether you will pay less in premiums when you convert than if you should purchase new coverage. This will require some research on your part. Factors such as your current age and health will affect the relative cost of each option.

Last, consider whether the needs of your beneficiaries will be best met by converting your policy or by purchasing new coverage. What are their needs? Is there an end date to those needs or are they continuing? How old is your beneficiary and what is the likelihood they will predecease you? All of these questions must be answered and weighed before you make a decision to convert an existing policy or to purchase new coverage.

Life Insurance Conversion vs Portability

If group life insurance coverage is “portable” an employee can take this coverage with them when they leave employment, and simply pay their employer the premiums. This option is usually available to employees who are younger than 69 and not leaving their employer due to illness, injury, or retirement. Most “ported” group life insurance will cover a former employee until age 70. 

Portability may be a more cost-effective option than conversion for an employee seeking to leave work but maintain life insurance coverage. The employee should compare the cost of premiums, the breadth of coverage, and whether they will need coverage past age 70 in making this decision.

Failing to Convert Your Life Insurance Policy

If a policyholder fails to convert their life insurance policy before the required deadline in term life insurance, or before the date provided in the conversion packet provided by their employer, life insurance coverage will lapse and terminate. This means that the life insurance company will deny a claim for death benefits due to lapse. However, there still may be something that can be done, and the beneficiary should appeal the life insurance claim denial.

Talk with an Experienced Life Insurance Lawyer

Unfortunately, many policyholders and employees get faulty advice from their agent or their employer and fail to effectively convert their policy as they intended. If the failure to convert was no fault of the policyholder or employee, their beneficiaries may still get a payout.

If your claim was denied due to lapse caused by failure to convert, talk with the life insurance lawyers at Boonswang Law. We investigate the cause of the lapse and if the policy would have converted but for the failure of an agent or employer to adhere to their legal requirements, we can get you paid. Call us at (855) 553-9010 to discuss your case with us, free of charge.