Converting a Term Life Insurance Policy to Whole Life Insurance

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Term life insurance only covers you for the number of years defined in your policy – usually between 10 and 30. As you approach the end of your policy term, you realize that you want your coverage is maintained. The good news is you may not have to start over and purchase a new policy. Instead, you may be able to convert your term life insurance to whole life insurance without further evidence of insurability.

If you are considering converting your term life insurance policy to whole life insurance, we outline some steps you can take and who can benefit from converting their policy.

Term vs whole life

With term life insurance, the policyholder chooses a period during which their policy is active – typically between 10 and 30 years. The policyholder pays the premiums until the end of the term. If they die during the term of the policy, their beneficiaries receive the death benefit. If this is not the case, the policyholder is left without cover at the end of the term.

Whole life insurance, on the other hand, is a permanent policy. With whole life insurance, you pay the same premium amount until you die. Over time, premium payments can accumulate cash value which can accumulate interest or returns. You can usually take out loans against this money or make withdrawals before your death. However, if you decide to borrow under your policy, the amount you borrow may reduce the face value of the policy, and your beneficiary will receive a lower payment if you don’t repay your loan.

What happens to term life insurance at the end of the term?

You may be wondering “What happens to term life insurance if you survive the term?” If you survive your term life insurance policy, the premiums you paid are retained by the life insurance company and your coverage ends unless you make arrangements in advance to convert it or extend it if this option is available. For example, if your term ends on February 21, 2021 and you die on February 24, 2021 without doing anything to transform or extend your contract, your loved ones will not receive any death benefit since the contract has ended.

How to convert term life insurance to whole life insurance

Knowing how to convert term life insurance to whole life insurance can help if you decide you still want coverage after you outlive your term life insurance policy.

  1. Talk to your insurance company about the types of permanent life insurance available and the cost to convert.
  2. Complete a Life Insurance Conversion Application.
  3. Choose the amount of life insurance you want in the transformation.
  4. Choose the premium billing method (annual, quarterly or monthly).
  5. Enter your bank account information if you are setting up automatic withdrawals.
  6. Assign beneficiaries. Remember to include their social security numbers.
  7. Sign the request.
  8. Mail, fax or download the request.

Reasons to consider moving from term to life

Whole life insurance offers some additional benefits beyond the death benefit provided by term life insurance. If you are considering converting your term policy to a whole life policy, you may want to consider the following features:

With permanent life insurance:

  • Part of your premium will go towards setting up an account at market value: When you convert a term life insurance product, you add a second feature: a cash value account. You can usually borrow money from a whole life insurance policy once the cash value is sufficient.
  • Your policy will not expire: A whole life policy is permanent, which means you’ll pay the same premiums and keep the coverage for the rest of your life, unless you stop paying your premiums.
  • You will lock in premiums for life: Since a whole life insurance policy does not expire, whatever premiums you accept will be the same for life. You will know what you are paying for the rest of your life.

What is a conversion clause?

A conversion clause is a section of most life insurance contracts that allows policyholders to convert their term life insurance policy into a form of permanent life insurance. Conversion clauses are interesting because they allow an insured to maintain his coverage without presenting new evidence of insurability.

“The way I would describe it is when someone buys futures, in essence they’re leasing insurance with an option to buy,” says Patrick Bowen, vice president and senior account manager for the Legal & General America life insurance. “The convertibility clause is your chance to convert without further evidence of insurability. But if you’re not careful and forget to convert in the allotted time, you’re out of luck.

The conversion clause allows heads of household, for remuneration, to transform their term insurance into permanent life insurance without having to re-qualify or undergo physical examinations.

Not all policies have a conversion clause, and policies that have conversion clauses are generally more expensive. However, the conversion clause may be worth the additional expense, Vogel says. Sometimes it’s better to pay a conversion cost than to go without coverage when your term policy ends.

How it works

Let’s say a woman has a 20-year term policy with a 10-year conversion clause. Nine years after starting her contract, she develops heart disease, diabetes or another health problem.

Because she is still in the 10-year conversion period, she can convert her term life insurance policy to a permanent policy. By switching to a permanent policy on time, she would not need a new physical examination and would be eligible for permanent policy coverage that might otherwise be difficult to obtain without the ability to convert her existing policy.

If the policy had been purchased without a conversion clause, it would face an expiring policy and potentially high renewal premiums.

Review your policy annually

To make sure that the conversion window doesn’t fly away, you may want to review your policy with an agent on a yearly basis.

The development of a health problem is not the only reason to convert a policy. As a general rule, the older you are, the more expensive it will be to insure. If you can start paying for a permanent policy in your 20s, the monthly premium will be much lower than a person in their 50s.

And your financial needs can change as you get older. You might need a policy with a large death benefit to replace your income and support three young children, but having such a large policy may not be as important once you have paid off the mortgage and children grow up.

Frequently Asked Questions

What is the best life insurance company?

The best life insurance company is different for everyone because it depends on individual preferences and needs. One of the easiest ways to find the best life insurance company for you is to speak with an independent insurance agent and discuss your policy needs. Once you’ve chosen a policy, you might want to generate a few life insurance quotes online from multiple providers. This way you can make sure that you are getting the right policy at the right price.

Is Term Life Insurance Better Than Whole Life Insurance?

Term life insurance is a better option for some people, and whole life insurance is a better life insurance for others. Term life insurance can be a great option for those who want affordable premiums for a period of time only. For example, if you only want coverage while your children are young and financially dependent on you, term life insurance might be a great option.

Should you take out life insurance for your child?

Whether or not you get life insurance for your child is a personal decision. Getting life insurance for your child early on can improve their insurability later in life. If your child were to develop a health problem later on, they could benefit from more affordable rates by securing a cheaper premium earlier in life.


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