By Kimberly Lankford, from the September issue of Kiplinger's Personal Finance
When you buy a term-life-insurance policy, be sure you understand the details ofyour conversion rights, if any. You want to know what kind of permanentinsurance you may convert to, how much it will cost and the timetablefor making the conversion.
Most useful is the right to convertanytime up to the end of the term. But with some policies, theconversion window closes at age 50. That makes it a tough decision ifthe original term policy (and its lower premium) extends long past thattime, 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'spermanent offerings. Whole-life policies are all about fixed premiumsand guarantees. Universal life, on the other hand, lets you specify howlarge a premium you want to pay (above a minimum to cover the cost ofproviding the actual insurance). You may be able to suspend premiumsfor a while, provided you've built up enough cash value to cover thecost of maintaining the policy. It's like feeding a meter in advance.
If you convert to a permanent policy in your fifties or sixties toextend the years you are covered rather than to build up cash value,universal life will cost you less out of pocket. Variable universallife combines the premium flexibility of universal life with a shot atgrowth 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 stayinsured so that your family members get tax-free cash at your death,it's a poor option.
See A New Lease on Life Insurance for tips on using insurance policies to cushion your retirement.