Converting Term to Whole Life

In this article...
  • Learn about the process of converting term to whole life and find out when you might want to consider replacing your current policy with permanent insurance.

Term life insurance is an affordable way to provide your loved ones with a death benefit when you die. Many people find that term life continues to meet their needs over time, but some individuals experience life changes that make it better to change their coverage. Converting term to whole life offers a relatively simple way to modify insurance.

What Does Converting Term to Whole Life Mean?

Term life insurance promises to pay a death benefit for a limited timeframe called a term. Whole life insurance is a permanent option that lasts until you die. In addition to paying a death benefit, whole life accumulates a cash value that you can borrow against or withdraw from to cover expenses. Converting term to whole life means taking an existing term life insurance policy and exchanging it for a whole life policy that has the same death benefit.

Can You Convert All Term Life Insurance?

Most term life insurance policies are convertible, but not all of them offer this benefit. If you're shopping for insurance, ask the agent about convertibility. To find out if existing term life is convertible, consult your policy.

When Can You Convert Term Life to Whole Life?

When you can convert term to whole life depends on your policy. Some insurance agreements allow you to convert any time before term life insurance expires. Others have a conversion period, a limited window of time during which you can convert. For example, a 30-year term life policy may have a conversion period that starts at the beginning of coverage and lasts for 15 years. Once the deadline has passed, you normally can't convert.

How Do You Convert a Term Life Policy?

Converting term life to whole life is a simple process. To get started, contact your insurance agent. They will provide you with paperwork to complete. Normally, the new policy is in place within a few days.

With convertible term life, your acceptance for a whole life policy is guaranteed, so you won't have to undergo a medical exam. The underwriting department will simply approve you at the same health designation you had when you took out your term life. As a result, if you've made significant improvements in your health since you took out your term life policy, you may want to consider buying a new whole life policy instead of converting.

How Much Does It Cost to Convert Term to Whole Life?

The insurance company won't charge you any fees when you convert your term life insurance. However, your monthly premiums are likely to increase. Whole life insurance is generally more expensive than term policies that provide similar coverage. Although your health and lifestyle won't be considered during underwriting, your age will affect the premium. The older you are, the higher your payment will usually be.

Do You Have to Convert Your Entire Policy?

Usually, life insurance companies give you the option to convert all or only a portion of your term life policy. In this case, the term life insurance policy's death benefit is lowered, and the premium usually decreases. You then receive a second whole life insurance policy and will be responsible for a second premium payment. This may help make conversion more affordable.

Who Should Convert Their Term Life Insurance?

If you meet any of the following criteria, you may benefit from life insurance conversion.

  • Recent change in health. If you developed a chronic condition that may make you uninsurable, converting term to whole life guarantees that you'll have life insurance protection until you die.
  • You have more room in your budget. You may have opted for term insurance initially due to its lower price. If you have more money available every month because you changed jobs, received a raise or paid off a debt, you may want to move to permanent insurance.
  • Desire for an asset. Although whole life shouldn't take the place of a retirement plan, it does have cash value that can give you financial security after you retire. Money from the cash value can fund long-term care, supplement Social Security income and cover expenses.
  • You have a large estate. If your heirs are likely to be subject to inheritance tax, converting a term life policy to whole life ensures that no matter when you die, your loved ones will receive a tax-free payout.

What to Consider When Converting to Whole Life

Often, life insurance companies let you choose from multiple whole life policies when you convert. Some things to consider when comparing your options include:

  • Why you want to convert. Having a clear understanding of your goals allows you to choose a policy that is in line with them. For example, if you want the ability to supplement your income as needed, you may benefit from a whole life policy that pays annual tax-free dividends.
  • Your budget. Know how much you can afford for your premium to increase before you shop.
  • Potential for long-term care needs. Some whole life insurance policies have a long-term care rider. If you don't have much money saved to cover the costs of a nursing home or assisted living in the future, you may want this added benefit.
  • Death benefit requirements. If you believe you need more insurance than what your term life policy offers, consider a policy with an increasing death benefit. Normally, you can't raise the death benefit when you convert, but this type of whole life gets around that. Over time, its death benefit grows and may eventually reach the amount you desire.

What Happens If I Outlive My Whole Life Insurance Policy?

Whole life insurance is permanent insurance. Typically, if you continue to make the premium payments required, the coverage will last until you die. You can outlive term life insurance because it has a limited coverage period and expiration date. Converting your policy to whole life lets you maintain coverage. If you don't convert or your policy doesn't allow for conversions, you'll need to take out a new life insurance policy.

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