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PARTIAL CONVERSION WITH TERM RESET

06/14/23

Partial conversion with term reset is a newer option offered by some companies that extends the renewable and convertible term life insurance options.

What it is: Partial conversion with term reset allows you to convert a portion of your term life insurance to permanent life insurance. The remaining amount of term life insurance can then be reset to a brand new term. This conversion and reset is done without medical requirements, and the new policy is at regular health class premiums.

Partial conversion with term reset allows you to extend your term life insurance policy, without a medical exam. i.e. you could for example in year 8 of a term 10 policy, extend your coverage out to a brand new term 20 policy, at the tradeoff of making a  small portion of your policy permanent life insurance coverage.

 e.g. you have $1,000,000 of 20 year term. After 15 years, you convert $25,000 of the coverage to a permanent life policy. The remaining $975,000 is then reset to a brand new 20 year term. This effectively extends your term life insurance, at the cost of a small amount of permanent life insurance.

When to use this option: You should investigate this if you have an existing term life insurance policy that you’re considering replacing for another term life insurance policy. You may be able to take your existing term life policy and extend it to a new, longer term life insurance policy, without a medical exam, with the tradeoff of a small amount of permanent life insurance.

 It’s also useful if you’ve become uninsurable and are using the term life insurance conversion option. Under the standard conversion option, you convert a part of your term life insurance to permanent, and the remaining term coverage either continues for the duration of the original term, or it’s simply cancelled. If you’ve become uninsurable, the partial conversion with reset lets you convert a part of your policy to permanent, and still keep the remaining amount of coverage as much cheaper term life insurance. The impact of that is that you now have much more life insurance for a lower premium.   

Tip: This provision is offered as ‘administration’ only. That means it’s not guaranteed in the policy. And that means the option can be revoked or changed at any time by the company.

 Some common Partial Conversion with Term Reset examples:

RBC Insurance

  • Partial carryover (the amount of the term coverage that is being reset) has no limits other than the policy minimums.  
  • You can convert to the minimum amount of whole life, which is currently $25,000. That means you can convert $25,000 to whole life and the entire remaining coverage can become a brand new term policy.
  • Only whole life and term to 100 currently offered for the permanent policy.
  • The new term rider can be any of their existing term policies – shorter or longer than the original policy. i.e. a term 20 that uses this option can have the new term coverage be a new term 10, term 20, or term 30 policy.

Equitable Life

  • At least 50% of the new policy must be permanent (and thus, 50% term).
  • Can convert to whole life or universal life insurance.
  • Only available on term 10 and term 20 policies, not available for term 30/65 policies.  
  • Can reset the term coverage portion to either a new term 10, or a new term 20.

Sun Life

  • Available on most term policies, but not their TIB (Term Insurance Benefit).
  • The new term coverage must be the same as the original term length, or longer.
  • The maximum amount of term that can be reset is 3 times the amount of permanent life insurance coverage converted. i.e. if the new permanent plan is $100,000 then the maximum amount of term life coverage that can be reset is $300,000.

Foresters Financial

  • 50% or more of the coverage must be converted to permanent life insurance.
  • must be done before the 5th policy anniversary.

 If you are considering replacing your term policy or near the end of your term, or would like to extend your existing term, then the partial conversion with term reset can be an excellent way to get a new, extended term policy without any medical requirements. Please contact us if you’d like further information and a current quote.