What is a Convertible term plan?A convertible term plan is nothing but a regular term plan with an added feature of conversion. To further understand, let us first know what a term plan is. A term plan is when the policyholder is covered for a specific period at a pre-determined sum assured, which is paid only on the insured’s death. A convertible term plan allows the policyholder to convert the plan into any other plan in the future.
For example, if you want to switch from a term plan to endowment or a whole life insurance plan after 5 years of purchasing the policy, you are eligible to do so under convertible plans. However, the terms and conditions to do so may vary from policy to policy and provider to provider.
Features of Convertible Term Insurance Plans:
- Some term insurance policies come with an inbuilt feature of conversion while some offer it as an add on feature.
- Whether inbuilt or add-on, the conversion is only possible when the policyholder makes an official request for the same to the insurance provider. There is no automatic conversion of the plan. If the insured does not make any request, the plan will continue as a regular term insurance plan.
- The premium of convertible term insurance plans is determined at the start of the policy. Even after the conversion, the benefits may change, but the premium will remain the same.
- With a term insurance plan, no benefit is paid at the maturity of the policy. However, if it is converted into an endowment plan, the policyholder will be eligible to claim maturity benefit as well.
- Assessment of risk, also known as underwriting, is conducted by the insurance provider at the time of purchase of the policy. However, no new underwriting is required at the time of conversion of the plan.
- Convertible term life insurance plans also offer tax benefits to policyholders. The premium paid under the policy is exempted up to Rs 1.5 Lakhs under Section 80 C of Indian Income tax act. Whereas, the benefit received at the time of maturity or death is also exempted under Section 10(10D).
- Although the plans offer dual benefit, the premium amount of convertible term insurance plans can be higher than the regular term insurance plans.
Learn more about different Online Term Insurance Plans here.
The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product. Aditya Birla Capital Group is not liable for any decision arising out of the use of this information.
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