 Considering
whether to convert term policies
|  Dear
Dr. Don,
I am 61 years old and have been reviewing my insurance
coverage with a financial adviser. I have one permanent value policy
and two term policies. According to the financial adviser, I could
transfer the term policies to a universal life policy to have a cash
value and transfer the permanent policy as well. I need your help.
Is it worth doing it at my age? My concern on term policies is if
I pass on converting them, the money is gone with no benefits at all.
-- Jane Juncture
 Dear
Jane,
Term insurance provides protection while it is
kept in force. Just like auto insurance and homeowners insurance,
the policy does not have any value after it is discontinued. The
benefit is in providing insurance coverage while the policy is in
force.
Although your term policies can be converted to universal
life, they will only develop cash value after you have been paying
the new premium for at least a year.
Don't second-guess the premiums you paid for the term
policies over the years, regardless of whether it was the right
decision, because you can't change the past.
Focus, instead, on your insurance needs going forward
and the best way to meet those needs. The Bankrate feature, "Just
the facts on life insurance," has a good overview of the
different types of life insurance.
Start out by asking yourself how much life insurance
you need to accomplish goals like supporting dependents, educating
grandchildren, paying estate taxes, providing bequests to children
and making charitable contributions. If your goals can be covered
by your existing savings and investments, you may not need any additional
life insurance coverage. A Bankrate interactive worksheet or calculator
can help you determine your insurance needs.
If you have more insurance coverage than you need,
you should consider discontinuing one or both of your term insurance
policies to balance the amount of life insurance with your need.
If you need more insurance, you can purchase additional coverage.
The type of coverage to buy depends on the nature and duration of
the need. If the need is for less than 10 years, consider additional
term insurance coverage. If the need is for the remainder of your
life you should consider universal life, universal variable life
or whole-life policies.
While your existing permanent life insurance policy
can be exchanged for a universal life policy, it is not easy to
determine whether you would be better off with the existing policy
or the proposed new policy. That determination requires a detailed
comparison of the two policies. I don't have enough information
to do that for you in this column.
You didn't explain how your financial adviser is compensated,
but a possible motivation for a financial adviser who is also an
insurance agent to suggest these changes is for the commission she
earns on the sale of the universal life policy. I fully support
financial professionals getting compensated for their time and advice,
but unfortunately it's often left for the consumer to figure out
whether the professional is putting the client's needs first.
Reviewing your insurance policies is an important
part of financial planning. So is suggesting appropriate changes
to those policies. If the adviser hasn't made it clear to you why
these changes are appropriate and hasn't discussed the compensation
in making these changes you need to have those discussions.
On a related note: Anyone relying on term life insurance
provided through their employer should realize that the coverage
will terminate if they lose their job. They may be able to convert
some portion of the group term coverage to individual coverage.
If that converted amount is not enough, they should consider purchasing
some individual life insurance to supplement the group term insurance
so that a job loss does not leave them with an inadequate amount
of coverage.
Note: Thanks to Edward Graves, an insurance
professor at The American College, for his insight in helping me
answer this reader's question.
| 
