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How to Convert Your Policy

When you buy a term policy, be sure you understand the details of your conversion rights, if any.

When you buy a term policy, be sure you understand the details of your conversion rights, if any. You want to know what kind of permanent insurance you may convert to, how much it will cost and the timetable for making the conversion.

Most useful is the right to convert anytime up to the end of the term. But with some policies, the conversion window closes at age 50. That makes it a tough decision if the original term policy (and its lower premium) extends long past that time, says Glenn Daily, an insurance adviser in New York City.

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Some term policies will let you convert to any of the insurer's permanent offerings. Whole-life policies are all about fixed premiums and guarantees. Universal life, on the other hand, lets you specify how large a premium you want to pay (above a minimum to cover the cost of providing the actual insurance). You may be able to suspend premiums for a while, provided you've built up enough cash value to cover the cost of maintaining the policy. It's like feeding a meter in advance.

If you convert to a permanent policy in your fifties or sixties to extend the years you are covered rather than to build up cash value, universal life will cost you less out of pocket. Variable universal life combines the premium flexibility of universal life with a shot at growth because the cash value is invested in mutual fund-like accounts. But there are no guarantees. If your priority is a low-risk way to stay insured so that your family members get tax-free cash at your death, it's a poor option.

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