Life insurance - conversion extension?

[YummyRaisins]

Hi all,

I'm in the process of purchasing life insurance and the agent I'm working with is pushing a conversion extension rider. In my mind, this feels like an added cost with very little value added, but maybe I'm wrong.

My understanding is that the fee allows me to extend the term of my policy or to convert my policy to whole life at the end of the term. I don't plan on doing this, since in 20 years my kids will be adults and I should have sufficient savings to not need the coverage. As it is I was planning on having staggered policies (10 and 20 years, respectively) to dial down my coverage as my financial situation improves.

The ride adds about +10% to the cost over the policy premium alone.

Is conversion/extension something I need to have? Is it worth the added cost?

[KungfuRabbit]

Insurance is a gamble no matter what, you are paying a known amount of money for someone else to accept the risk.

If you are healthy and financially secure 10 or 20 years from now you won't use the rider and it'll be a waste of money.

If you are unhealthy (some sort of cancer / heart disease that increases your chance of death in the near future), you'd likely utilize the rider no matter your financial situation (even if you are a multi-millionaire if you are likely to die in the next 5-10 years might as well pay a few thousand $$s for your family to get a big payout).

If you are healthy but your financial situation took a hit for whatever reason and you aren't well off, then you'd likely utilize the rider to keep that cushion for your family.

So, in 2 out of 3 scenarios you utilize the rider and it would have been worth it...but the real question are whats are the odds you'll be in each scenario down the road?  I have no idea.

It also comes down to what is lost if you die without insurance.  Would your wife end up homeless without your income, or would your kids needs to pay for their own college and your wife needs to work a few years longer.  In the first scenario I'd get the rider, in the second scenario I'd say they'll get over it. 

Sorry, no clear answer man.  The MMM community in general is very divided on all kinds of insurance from what I have seen.   MMM himself lives with also zero insurance of any kind, but is also quite wealthy and can take the various hits no problem (and it gives him something to write about?). 

[YummyRaisins]

Thanks for the response.

I'm late 30s and in good general health with no history. Haven't had a job paying an adult wage for very long, so while I'm saving vigorously I'm most definitely not in the same situation as MMM.

My thinking was to have higher coverage for the first 10 years while I'm accumulating savings and while my kids are young, then cut it down. After 10 years they'll be approaching the end of high school and I'll have hopefully saved enough to be FI or close to it. At that poanit the coverage would halved. Another ten years and kids will be out of college and doing their own thing (wishful thinking) and coverage would drop completely. Without a massive derailment, we should no longer need the coverage. There's always my untimely demise to consider, but it wouldn't be as big a financial problem in 22 years as it would be in 2.

Haven't decided whether or not to pay for college. I went to a state school and had little debt, but that is becoming a less viable option for youmg people as costs climb. We'll likely have some savings towards it, but right now retirement in primary.

[cchrissyy]

i see two little red flags before you get to the question
1 - you are using an agent
2 - the insurance company offering this term policy also does whole life

based on those, i expect you're not getting a good price or terms.
i suggest getting quotes from somewhere else. I like Amica. there are also aggregator websites for quotes such as term4sale.com

your idea to ladder two policy lengths is good. but you're dealing with a salesperson when you could be shopping independently.

[YummyRaisins]

Thanks for the suggestions. I'll look into those sites

The rates could probably be better. $32/mo for 20 years $750,000. 10 years is about half that. The provider is Principal. There was a rate sheet early on and Transamerica was the cheapest by a small amount. Unclear to me why we ended up with Principal, but it's been going on 5 months now and I only recently got the proposed policy summary.

The process has taken so long, at this point I figure I should just take the policy for now and shop around again for a better rate immediately to save some money.

[secondcor521]

"Please pay us more money for something you seem pretty sure you don't want so that we have at least two more opportunities to attempt to sell you more of our product when you almost certainly won't need or want it."

"Uh, no thanks," would be my answer to that offer.

And yeah, shop around.  I like the online brokers like selectquote.com and ones like them.  You'll probably get more quotes and a lower price.

[YummyRaisins]

"Please pay us more money for something you seem pretty sure you don't want so that we have at least two more opportunities to attempt to sell you more of our product when you almost certainly won't need or want it."

"Uh, no thanks," would be my answer to that offer.

That has been my sentiment, but I didn't know if I was missing any variables.

[rmorris50]

The conversion to a permanent policy provision is useful if you want to insure your underwriting status as of today. So for example, if you get underwritten as super preferred, but in 20 years your health deteriorates, or god-forbid your disabled in a car accident, you might find you need some permanent insurance, and this provision would let you get a permanent policy at super preferred rates. It's so cheap (an extra $3 a month?) I'd probably get it.

The term extension is kinda not as valuable in my mind, because if you need insurance still in 20 years you probably want a permanent policy. and if your healthy, just go out and get a new policy. However, one subtle note is that the contestability period and suicide exclusion period will start over with newly underwritten policy. If you exercise a conversion/extension provision, those shouldn't start over.

I understand you most likely won't use those provisions, but only you can answer if insuring your underwriting status is worth the $3 a month.