Converting Term Life Insurance: Making The Switch Easy

Life insurance is a valuable financial product that provides peace of mind and financial protection for you and your loved ones. However, life insurance policies are not one-size-fits-all, and there may be times when you need to adjust your coverage or switch to a different type of policy. Changing your term life insurance can be done by renewing your current policy, converting it to a whole life policy, or taking out a new policy altogether. Here are some reasons why you might want to change your term life insurance:

- Your needs have changed: Your children may have grown up and no longer require financial support, or you may have gone through a divorce or a significant change in your income or estate value.

- Your current level of coverage is no longer suitable: You may prefer to switch to a whole life insurance policy for permanent coverage or opt for a term policy if you previously had whole life insurance.

- You're changing jobs: You may need to review your group life insurance benefits and determine if you need additional private coverage.

- Your policy is ending: If you still need coverage, you might consider extending your term or converting to a whole life policy.

- Your finances have changed: You may no longer be able to afford the premiums or prefer to include a cash value policy in your financial plan.

- Your health has improved: If you've made positive changes to your health, such as quitting smoking or losing weight, you may qualify for a better premium.

Converting to whole life insurance

Most term life insurance policies offer "riders" that allow you to convert your term life policy to a whole life policy. You can check whether you have this option by reading through your policy or talking to your insurance company. The majority of insurers will allow you to convert without taking another medical exam or answering health questions, as long as you do so within a certain time frame or by a certain age, usually around 65 to 75.

However, there are also some considerations to keep in mind. The premiums for whole life insurance are often more expensive than those for term life, so it's important to review your financial situation and ensure you can afford the higher premiums. Additionally, converting may not be beneficial if you are not in a stable financial position, as you could lose your coverage if you're unable to pay the higher premiums.

If you're considering converting to whole life insurance, it's important to review your current policy and understand the deadlines and restrictions set by your insurer. It's also a good idea to consult with a financial advisor or insurance agent to ensure you're making the best decision for your needs and financial goals.

Changing your term life insurance policy

Understand the reasons for the change:

Ask yourself why you want to change your term life insurance policy. There could be various reasons, such as changes in your health, income, family situation, or financial goals. For example, you may need to adjust your coverage amount, switch from term to whole life insurance for permanent coverage, or reduce your premiums due to affordability issues.

Review your current policy:

Before making any changes, carefully review the terms and conditions of your existing term life insurance policy. Check if it includes a conversion privilege or rider that allows you to convert it to a whole life policy. Additionally, look for any guaranteed renewable clauses that may enable you to renew or extend your term policy without a new underwriting process or medical exam. Understanding the options available within your current policy can help you make more informed decisions.

Contact your insurance company:

Get in touch with your insurance company or agent to discuss your options. Ask them about the possibility of converting your term policy to whole life insurance, especially if your health or financial situation has changed. They will guide you through the process, including any costs, deadlines, and the portion of your existing coverage that can be converted.

Evaluate the costs and benefits:

Converting to whole life insurance usually results in higher premiums. Consider your budget and determine if you can afford the increased premiums associated with whole life insurance. Additionally, be aware of any one-time fees charged by the insurance provider for making the switch.

Understand the alternatives:

If converting to whole life insurance is not feasible or desirable, consider other alternatives. You may be able to renew or extend your term policy, especially if it contains a guaranteed renewable clause. Alternatively, you could purchase a second term life insurance policy to overlap with your existing one, creating a "laddering strategy" that ensures robust coverage during the years you need it the most.

Compare new policies:

If you decide to switch insurance providers, carefully compare the benefits, premiums, and terms of new policies. Be mindful that switching providers may result in a new contestability period, upfront fees, and a new medical exam, which could lead to higher premiums or even render you uninsurable.

Make the switch:

Once you have decided on the type of policy you want and found an insurer that meets your needs, go ahead and apply for the new policy. Ensure that your new policy is active before canceling your old one to avoid any gaps in coverage.

Remember that changing your term life insurance policy may come with certain costs and potential drawbacks, so it's essential to carefully evaluate your options and consult with a licensed insurance agent or financial advisor before making any final decisions.

Switching life insurance providers

Reasons for Switching:

Ask yourself why you want to switch providers. There are various valid reasons to do so, including changes in your life circumstances, coverage requirements, financial situation, or health improvements. For example, you may no longer need the same level of coverage if your children have grown up and become financially independent, or you may want to switch from term to whole life insurance for permanent coverage.

Choose the Type of Life Insurance:

Before cancelling your current policy, decide on the type of policy you want. Opt for term insurance if you want coverage for a specific period. Choose permanent life insurance, which includes whole, universal, and variable life insurance, if you want lifelong coverage. Permanent policies often come with additional benefits, such as a cash value component, but tend to be more expensive.

Determine the Coverage Amount:

Consider what you want the death benefit payout to cover and how your beneficiary will use it. Are you aiming to replace your income for your spouse, leave an inheritance for children, or cover burial expenses? Determine a coverage amount that aligns with your goals and budget.

Explore Adjustments to Your Current Policy:

Before making a switch, talk to your current insurer to explore potential adjustments to your existing policy. Find out if your policy allows for changes that can meet your new needs. This could save you time and money, and you may be able to avoid a health questionnaire or medical exam.

Apply for a New Policy:

If adjustments to your current policy are not feasible, proceed to apply for a new policy. You can do this through an insurance agent or online. Be prepared for the possibility of a medical exam, although accelerated underwriting processes may eliminate this requirement.

Ensure Your New Policy is Active:

It is recommended to purchase your new policy and ensure it is active before cancelling your old one to avoid any gaps in coverage. Be mindful of waiting periods and clauses in your new policy, such as the contestability period and suicide clause, which may impact the payout under certain conditions.

Understand the Financial Implications:

When switching policies, consider the financial consequences. There may be surrender charges, increased premiums due to your age, upfront fees, and potential tax implications. Weigh these costs against the benefits of the new policy to make an informed decision.

Compare Benefits and Alternatives:

Carefully compare the benefits offered by the new policies you are considering. Additionally, explore alternatives such as adjusting your current coverage, converting or renewing your existing policy, or purchasing a second policy to overlap with your current one for more robust coverage.

Reasons to switch

There are several reasons why someone may want to switch from term life insurance to whole life insurance. Here are some key reasons:

• Change in health status: A serious change in health status, such as a diagnosis of heart disease, diabetes, or cancer, may prompt an individual to switch to whole life insurance. Term life insurance policies often include a provision that allows conversion to a permanent policy, and this conversion can be done without undergoing a new medical exam or health assessment. This ensures continued coverage despite the change in health status.
• Outstanding debt: If an individual still has outstanding debt as their term life policy expires, switching to whole life insurance can help maintain coverage and protect their family financially. Whole life insurance provides lifelong coverage, ensuring debts can be paid off even if the policyholder passes away.
• Budget changes: Budgetary changes can go both ways. An individual might have initially opted for term life insurance due to its more affordable premiums but may now be able to afford the higher premiums of whole life insurance. On the other hand, someone might not be able to afford the premiums anymore and could switch to a different type of policy or a lower coverage amount.
• Leaving an inheritance: Whole life insurance can help individuals leave an inheritance for their heirs without compromising their retirement savings. The death benefit from a whole life policy is generally paid out to beneficiaries tax-free.
• Final expenses: Converting to whole life insurance can help cover final expenses, such as funeral costs, so that the policyholder's children or family members aren't burdened with these expenses.
• Dependents: Parents often obtain term life insurance policies to cover their children until they reach legal age or graduate from college. However, if they find themselves unexpectedly caring for a family member, young or old, switching to whole life insurance can help provide for the unexpected needs of these loved ones.
• Cash value asset: Whole life insurance policies offer a cash value component that grows with interest over time. This can be used to borrow money or even pay premiums. It provides individuals with a financial cushion that can be accessed tax-free during retirement or for other reasons.

Steps to switch

• Check your current term life insurance policy to see if it includes a conversion privilege or rider that allows you to convert it to a whole life policy. If it doesn't, you may be able to add a term conversion rider.
• Contact your insurance company to begin the process. They will walk you through the details, including how much of your existing coverage you can convert and how much the conversion may cost.
• Finalize the details with your insurance company, including the cost of any one-time fee for making the switch.
• Purchase your new policy and ensure it is active before cancelling your old policy. You don't want a gap in coverage.
• Cancel your old policy, bearing in mind any financial consequences of terminating that coverage.

Frequently asked questions