How to Convert Your Term Life Insurance Policy for Permanent Coverage

Shawn Plummer

CEO, The Annuity Expert

If you have a term life insurance policy, you may wonder if converting it into a permanent coverage policy is possible. Yes, converting your term life insurance policy to permanent coverage is possible. In this guide, we will discuss converting your term life insurance policy for permanent coverage and the benefits of doing so.

What Is Convertible Term Life Insurance?

Convertible term life insurance is a type of policy that provides temporary life insurance coverage. It is called “convertible” because the policyholder can convert it into a permanent life insurance policy without undergoing a medical exam. This can be an excellent option for people who want temporary life insurance coverage but are unsure if they will purchase a permanent policy. Convertible term life insurance is also a good option for people who want to save money on their premiums.

If you want convertible term life insurance, compare policies from different insurers to find the best deal. To understand your purchase, carefully read the policy’s terms and conditions.

Why Would You Convert Your Term Insurance?

A term life insurance policy may be all you need in the beginning. It’s a low-cost method to support your loved ones after you’re gone by providing death benefit protection that allows them to get through a difficult time and go on with their lives without financial stress when you’re gone.

However, as you get older, your requirements may change, and the coverage offered by a term life insurance policy may not be enough. For example, perhaps you continue to support dependents with your income or have incurred new debt and do not want it to go to your family if you pass away. This is where choosing a permanent life insurance policy over one-time coverage can ensure that the legacy you intend is maintained.

Fortunately, you won’t have to start from scratch with a new life insurance policy in many situations. Term conversion allows you to convert from term insurance to permanent coverage. Examine your policy for a conversion option if there is one available.

Converting Term Life To Whole Life

Understanding Term Life Insurance

Term life insurance is a type of life insurance that provides coverage for a specific term, typically 10, 15, 20, or 30 years. In addition, it pays a death benefit to the beneficiaries if the policyholder passes away during the term. Term life insurance is often chosen for its affordability, allowing individuals to obtain higher coverage amounts for lower premiums than permanent life insurance policies. However, term life insurance does not accumulate cash value or provide coverage beyond the specified term.

The Benefits of Permanent Life Insurance

As the name suggests, permanent life insurance provides coverage for the policyholder’s entire lifetime. Unlike term life insurance, permanent life insurance accumulates cash value over time, which can grow tax-deferred and be accessed for various purposes, such as supplementing retirement income, funding education expenses, or covering emergency expenses. Permanent life insurance also provides a death benefit to the beneficiaries upon the policyholder’s death, regardless of when it occurs, as long as the premiums are paid. Permanent life insurance comes in various forms, including whole life, universal life, and indexed universal life, each with unique features and benefits.

Understanding Conversion Option in Term Life Insurance

Many term life insurance policies come with a conversion option, allowing policyholders to convert their term policy into a permanent one without undergoing a new medical examination or providing proof of insurability. The conversion option typically has a specific time frame during which it can be exercised, such as within the first ten years of the term policy or before a certain age, depending on the policy terms. The conversion option can provide policyholders with flexibility and the opportunity to obtain permanent coverage without going through the underwriting process. In addition, it may be beneficial if their health has changed since they initially purchased the term policy.

How To Convert Your Term Life Insurance Policy For Permanent Coverage

Benefits of Converting Term Life Insurance to Permanent Coverage

Converting a term life insurance policy to permanent coverage can offer several benefits, including:

  • Lifetime Coverage: Permanent life insurance provides coverage for the policyholder’s entire lifetime, as long as the premiums are paid, unlike term life insurance, which expires after a specified term. This can provide peace of mind, knowing that your loved ones will be protected no matter when you pass away.
  • Cash Value Accumulation: Permanent life insurance policies accumulate cash value over time, which can grow tax-deferred and be accessed for various purposes. This can provide a source of savings and potential financial benefits, such as supplemental retirement income, emergency funds, or funds for education expenses.
  • Estate Planning Strategies: Permanent life insurance can be used as a tool for estate planning, allowing you to transfer wealth to your beneficiaries tax-free. The death benefit proceeds can help beneficiaries pay estate taxes, cover final expenses, or provide an inheritance.
  • Flexibility in Premiums and Death Benefits: Permanent life insurance policies typically offer flexibility in premiums and death benefits. Depending on your financial goals and budget, you can pay premiums for specific years or your entire lifetime. You can also adjust the death benefit amount to suit your changing needs, such as increasing it to accommodate a growing family or decreasing it during retirement.

Understanding the Conversion Process

Converting a term life insurance policy to permanent coverage is generally straightforward, but it may vary depending on the specific policy and insurance company. Here are the general steps involved:

  • Review Your Policy: Review your term life insurance policy and its terms and conditions, including the conversion option details, such as the time frame during which it can be exercised and any restrictions or limitations.
  • Contact Your Insurance Company: Contact your insurance company or agent to initiate the conversion process. They will provide the necessary forms and information on the required documentation.
  • Complete the Application: Fill out the conversion application form, which may require basic personal information, policy details, and beneficiary designations. You may also need to provide your health history and other relevant information.
  • Submit the Application: Submit the completed application form to your insurance company, along with any required documentation, such as a copy of your term life insurance policy and payment for the converted policy’s first premium, if applicable.
  • Underwriting and Approval: The insurance company may review your application and medical history, but no new medical examination or proof of insurability is typically required for the conversion. Once approved, you will receive the details of your new permanent policy, including the updated premiums, death benefits, and any riders or additional features.

Considerations Before Converting

Before converting your term life insurance policy to permanent coverage, there are several factors to consider:

  • Cost: Permanent life insurance policies tend to have higher premiums than term life insurance. Consider your budget and financial goals to ensure that the increased premiums are affordable in the long term.
  • Coverage Amount: Evaluate your current and future coverage needs to determine your permanent policy’s appropriate death benefit amount. Consider factors such as outstanding debts, future expenses, and financial obligations to your loved ones.
  • Cash Value Accumulation: If building cash value is one of your goals, compare the potential cash value accumulation of the permanent policy with other investment options. Consider the fees, charges, and potential returns to make an informed decision.
  • Health Condition: If your health has significantly changed since you purchased the term life insurance policy, converting to a permanent policy may be advantageous, as it allows you to lock in coverage without undergoing a new medical examination.
  • Riders and Additional Features: Consider any riders or additional features offered with the permanent policy, such as accelerated death benefit riders, long-term care riders, or waiver of premium riders. Evaluate their benefits and costs to determine if they align with your needs and priorities.
  • Financial Goals: Review your overall financial goals and priorities, including retirement savings, emergency funds, and other investments. Ensure that converting your term life insurance policy to permanent coverage aligns with your long-term financial plans.
  • Consult with a Financial Professional: It’s always a good idea to consult with a qualified financial professional or insurance agent who can provide personalized guidance based on your specific financial situation, goals, and needs. In addition, they can help you evaluate the pros and cons of converting your term life insurance policy to permanent coverage and make an informed decision.

What Is A Term Life Insurance Conversion

It’s a term conversion when you convert your term life insurance policy into a permanent one. Most convertible term life insurance policies allow you to convert some or all of your coverage into a permanent policy within a specific period.

What Is Permanent Life Insurance?

Permanent life insurance is a type of life insurance that does not have an expiration date. Unlike term life insurance, which protects you for a set number of years, permanent life insurance can continue to pay out benefits for the beneficiary’s lifetime as long as premiums are paid according to the terms of the policy.

The ability to create cash value may be available through these policies. For example, permanent life insurance policies grow tax-deferred, so you don’t have to pay taxes on any gains if the policy is active. In addition, policyholders can withdraw cash value for various purposes, such as building retirement funds, increasing the death benefit, or using it to supplement pension income via a policy loan.

Permanent life insurance typically costs more in premiums, but it may offer the following benefits:

  • It doesn’t expire. You may keep it as long as you pay the premiums.
  • The opportunity to grow the cash value.

Types of permanent life insurance include:

Why Convert To Permanent Insurance?

There are several advantages to converting your term insurance policy into a permanent life insurance policy, which may encourage you to take action. Some of those benefits include:

  • No medical underwriting
  • The ability to upgrade coverage
  • Help pay for funeral expenses
Converting Term To Permanent Life Insurance

No Medical Underwriting

The term conversion is typically much more straightforward than purchasing a new policy since most insurance companies allow you to convert without going through underwriting again.

When insurers evaluate your health history and background to set your premiums, underwriting is a procedure that helps them get a better picture of you.

Underwriting does not change, meaning your premiums will not be affected if you have developed health problems since acquiring your policy.

However, keep in mind that although changes in your health will not alter your premiums, they will still be influenced by your age.

Upgrade Your Coverage

If your income had improved beyond when you initially purchased life insurance, a permanent policy might allow you to upgrade your coverage at a higher premium.

Pay For Funeral Expenses

The costs of your funeral might be substantial. To assist your family pays for last-month expenses, consider converting to a permanent insurance policy to continue death benefit protection.

How To Covert Term Insurance To Permanent Life Insurance

It’s not difficult to convert your term life insurance into a permanent policy.

  • Your first step should be to contact your life insurance agent. Your life insurance policy may be complex, so having them assist you in comprehending the details might simplify the conversion process.
  • Then, look for the option to convert your policy in the fine print.
  • After choosing the options, determine how long the conversion window will be. The period during which policyholders have the opportunity to convert varies. Some allow it throughout a policy, while others impose a maximum time.
  • After you’ve done all this, contact your insurance agent to discuss the conversion further.

Ask Questions About Your Options

Some insurance carriers restrict the types of permanent policies you can convert your term policy into, so ensure you understand.

Find Out The Costs

Most term insurance plans can be converted for free, but this depends on the life insurance carrier. Depending on several factors, your premium may increase.

Converting In Stages

Although converting your term policy anytime is easy, you may not need to immediately. If that’s the case, you may be able to pay for it over a more extended period.

Find Out If A Conversion Makes Sense For You

Permanent life insurance can be a great way to ensure that your loved ones are cared for in the event of your death. If you have a term life insurance policy, you may be able to convert it to a permanent policy. This can be a wise move, especially if you are nearing the end of your term and do not want to worry about renewing your coverage. Many different types of permanent life insurance policies are available, so it is essential to do your research and speak with an expert before making a decision.

Once you have decided which type of policy is right for you, contact us for a quote. We would happily help you choose the best coverage for your needs and budget.

Helpful Tip: If you’re looking for an inexpensive way to establish your estate plan with a living trust and last will, our recommendation is:

Term Life Insurance Conversion

Next steps

A term life insurance policy may seem like a simple way to provide financial stability for your family should you pass away. However, considering its limitations when converting your term life policy into a permanent one is essential. Although tread carefully, a permanent life insurance policy can be a powerful asset, enabling multiple generations of your loved ones to benefit from its financial security. It’s always wise to discuss any concerns or questions with an experienced licensed agent before making this critical decision. The freedom with permanent coverage could be the best choice for your and your family’s long-term financial security. Consider discussing the options further with an agent today and requesting a free quote.

Convert Term Life Insurance To Permanent

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Frequently Asked Questions

Is it a good idea to convert a term life insurance to a permanent one?

Converting to a permanent life insurance policy from your term coverage could save you time and money if you have seen changes in your health. In addition, you don’t need to go through the underwriting process again, making it a precious option for preserving your coverage without any further hassle.

What is the main disadvantage of term life insurance?

While term life insurance tends to be the most budget-friendly option, it does have some drawbacks. For example, your policy will not accumulate cash value, there is no surrender money if you choose to cancel your plan, and any renewal of the policy after its original expiration may result in expensive premium adjustments based on age and health factors influencing risk assessment.

Which is a better whole life or term life insurance?

Suppose your life insurance needs are only present during a specific period, such as when you have children to raise; then term life is probably the most cost-effective choice. Whole-life coverage may be best if lifelong protection is desired.

Is permanent life insurance cheaper than term life insurance?

Term life insurance offers protection for a particular length of time and is much less expensive than permanent life insurance, accumulates money value, and adds additional benefits.

Can you turn term life insurance into an annuity?

Exchange it for a lifetime of security. With the 1035 exchange, you can seamlessly convert your life insurance policy into an income annuity without facing any taxation on any gains – giving up the death benefit in return for no more premium payments! In addition, you can effectively lock in regular monthly or annual income that lasts throughout your entire life (or a set number of years).

Can you convert term life insurance to whole life insurance?

Yes, you can turn most term life insurance policies into permanent life insurance, such as whole life. However, before purchasing or converting any policy, review the documents and look for a conversion clause that will reveal if possible.

*Disclosure: Some of the links in this guide may be affiliate links. I may receive a commission at no cost to you if you purchase a policy. It helps us keep the lights on!

Shawn Plummer

CEO, The Annuity Expert

I’m a licensed financial professional focusing on annuities and insurance for more than a decade. My former role was training financial advisors, including for a Fortune Global 500 insurance company. I’ve been featured in Time Magazine, Yahoo! Finance, MSN, SmartAsset, Entrepreneur, Bloomberg, The Simple Dollar, U.S. News and World Report, and Women’s Health Magazine.

The Annuity Expert is an online insurance agency servicing consumers across the United States. My goal is to help you take the guesswork out of retirement planning or find the best insurance coverage at the cheapest rates for you. 

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