These plans are best suited for young people, who see a lot of changes in life with growths in their careers and personal lives. So basically if you are a young person at the start of your career and you don't want to spend too much on insurance, buy a convertible term plan. Once you are settled and have a good income, you will be in a position to convert it.
A convertible term plan is kind of insurance policy which starts off as a term plan, but can be converted to a whole life or endowment plan later on. The term remains fixed. This means, if a term plan is bought for 30 years and maintained for 5 years after which the policyholder decides to convert it into an endowment plan, the endowment plan will only be valid for the next 25 years.
How it works
Convertible term insurance is designed for people who may not have the ability to pay large amounts of premium presently, but later on can afford it. Since term plans are much cheaper than endowment or whole life plans, young people buy it. It is better to buy a term plan when you are young since then it will be cheaper. A 25-year-old person will have to pay less for a term plan than a 35-year old. Let's say you bought a term plan at age 25, when your monthly income was Rs.15,000 and you were single and free of family duties. Now you are 36 years old, have a monthly income of Rs.50,000 and have a wife and a child. You can now convert the term plan into an endowment plan as you can afford it and also it will help in creating a fund for your as well as your family's future.
Advantages of convertible plans
Convertible term plans come with a host of advantages. For starters, it gives you the element of flexibility. You can practically buy and maintain an expensive plan at a cheaper rate till the time you can afford to pay it in full. Since you buy it at an early age, you pay less for it too. Then, you are exempted from a medical test at the time of the conversion. If you were to take a new policy, you would be subjected to medical tests. But since you are just converting, the insurer assumes that your health is the same as it was when you first bought the policy.
Convertible term plans are very well suited for people who cannot pay much now, but are confident of being able to do so at a later stage in life. It is suited for young people with a bright future who know their careers will grow. So if you want to invest in a policy with great features for both the present and the future, opt for a convertible term plan.
The author is the CEO of MyInsuranceClub.com, an online insurance price & features comparison portal.