What are the differences between conversion and portability for life insurance plans?
UPDATED: Jan 16, 2012
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Asked January 16, 2012
When converting a group life policy, generally one that is paid for or sponsored through the workplace, you have two choices: portability and conversion. Portability allows you to convert the group life policy to a personal term life insurance policy and conversion allows you to convert the policy to a whole life policy. In certain states, such as New York, Conversion is to a universal life insurance policy which gives you more power and flexibility over how the premiums are invested as well as a more defined list of financial tools.
If you choose portability, the resulting term life insurance policy can be established for a variable number of years, but the upper age limit for such a term is generally 70 years of age. For that reason, if you are in good health and over the age of 60, it might be a better financial move to opt for a conversion instead, if the option is available to you. Term life is less expensive to maintain than whole life, but it also has the potential to be a dead-end policy, or will require a higher expense later if the policy is then converted to whole life.
Conversion to a whole life policy will result in a life insurance policy that remains in effect for the rest of your life. It has other advantages, such as the ability to borrow against the accrued cash value of the policy. Whole life insurance is more expensive than a term life policy, but the benefits include a policy that does not expire, and the financial tools associated with whole, or permanent, life insurance.
In both cases, portability and conversion, you will not have to be subjected to a qualifying medical examination. Because you are not buying a new policy but simply altering the contract on an existing one, medical exams are not required the way they would be if you were starting a new private insurance policy.
Answered January 16, 2012 by Anonymous