Andy Woollon, Technical Protection Specialist & Presenter, Zurich UK Life

There is an option available with some term insurance policies that many customers are not aware of, or advisers have forgotten about, namely the conversion option.

It could be the single best and most flexible method available to overcome the problem of enabling the customer to continue their cover beyond the term of their policy, without further underwriting.

Background Term insurance protects clients for a set period and pays out if they die or are diagnosed with a terminal illness, within the term. However, most people survive and find themselves with no cover, at a time when their circumstances have changed and are at an age when they are less likely to get cover at standard rates. Applying for a whole-of-life( WOL) policy at that point, means the premium will be based on their current age and health, which may have changed considerably! This is where convertible term can be invaluable.

Convertible term( CT) The‘ conversion option’ has been around for many years, but is often overlooked, because it costs a little bit extra, when customers are often looking for the cheapest cover. It may also be that advisers have forgotten about it.

The option is added at the outset of the CT application, on a single or joint life first event( JLFE) basis( i. e. death or terminal illness), with level or increasing life cover only and allows the customer to choose to convert all, or part, of their sum assured to a WOL policy with the same provider at any time( or multiple times) before the end of the policy term, without any medical questions or underwriting.

If the customer has a joint life first event term policy, when they convert they can choose to have their WOL cover on one or both lives assured, and whether they want their WOL policy to pay out on a first or second event basis, subject to a maximum WOL age at point of conversion and if written in trust( see‘ Protection policies should be written in trust’ below). For example, a customer protecting a mortgage on a JLFE basis, might convert on a second event( JLSE) basis in order to fund a future IHT liability. Similarly, customers concerned about the Budget proposals around IHT on pensions and APR / BR assets, could use a single life CT policy as an option.

Health

THE £ 1 MILLION RELIEF ALLOWANCE WILL REFRESH

EVERY SEVEN YEARS FOR LIFETIME GIFTING.

The biggest advantage is that it removes health conditions as a factor( or barrier!) in continuing the customer’ s life cover. This is particularly valuable should a customer’ s health decline after taking out the term policy e. g. a heart condition could be a barrier to getting affordable life cover once the term policy expires, but if they have and use the conversion option, they’ ll be able to maintain cover irrespective of their health. Effectively they are protecting their health rating when they took out their term policy – which is generally when you are young and healthy – which turns their‘ temporary’ term policy, into a‘ permanent’ WOL policy, by guaranteeing their future insurability.

| PROTECTION ADVISER | AUTUMN 2025 | 21