Term Life Insurance: Convert To Permanent Or Not?

Term life insurance is a type of insurance that provides coverage for a specific period, such as 10, 20, or 30 years. On the other hand, permanent life insurance offers lifelong coverage as long as the premiums are paid. While term life insurance is often more affordable, permanent life insurance provides additional benefits such as building cash value over time and guaranteed coverage regardless of health status. Converting term life insurance to permanent life insurance can be a complex decision that depends on various factors, including budget, health, and long-term financial goals. It is essential to carefully consider the pros and cons of conversion to make an informed choice.

Converting is easy

Converting a term life insurance policy to a permanent one is a straightforward process. First, check your term life insurance policy to see if conversion is an option. Most policies offer this provision, but not all. If you're yet to purchase a term life insurance policy, it's worth inquiring about a term conversion rider before moving forward.

Next, check the term conversion period—the time frame during which you can convert. Some companies will allow policyholders to convert at any point during the term of their policy. However, many will limit the conversion period. For example, the conversion period on a 20-year term policy might be restricted to the first 10 years.

Then, contact your insurance agent or company to initiate the conversion process. You won't need to retake a life insurance medical exam or go through the underwriting process again. You'll simply fill out a questionnaire, and your new permanent policy will be issued within a few days. There are no fees to convert a term policy to a permanent one, but your rate—your premium—will increase.

It's a good option if you want lifelong coverage

Permanent life insurance is a good option if you want lifelong coverage. It's a way to provide a basic amount of coverage to pay final expenses, support a surviving spouse, or leave a legacy for surviving family members. It also offers options for handling sudden expenses, like costs associated with a medical issue or emergency home repair, or longer-term financial challenges, like college tuition or outstanding debt.

Permanent life insurance also guarantees a death benefit to your beneficiaries for as long as you maintain your policy, not just for a fixed period of time. Thus, permanent policies are often favored by those looking to enter their golden years with a way to pay for final expenses, provide additional financial security to a surviving spouse, or leave a financial legacy for children or grandchildren.

Permanent life insurance is typically seen as a way to provide a basic amount of coverage to pay final expenses, such as funeral costs. It can also be used to support a surviving spouse or domestic partner by replacing lost income, paying off joint debt, or funding future goals like college tuition for children or grandchildren.

In addition, permanent life insurance can be used to leave a financial legacy for surviving family members, such as children or grandchildren. This can be especially important if you want to provide for their future needs, such as education or a down payment on a home.

Another advantage of permanent life insurance is that it can help with estate planning. The death benefit from a permanent life insurance policy can be used to pay estate taxes and other expenses, ensuring that your heirs receive the intended value of your estate.

You can convert part of your term life insurance

With a partial conversion, you can choose how much of your term life insurance you want to convert to permanent life insurance. For example, if you have a $250,000 death benefit through your term life insurance, you could use $150,000 for your new permanent life insurance and keep the remaining $100,000 as term life insurance. This option gives you stacked life insurance coverage, with both a term policy and a permanent policy active at the same time.

Partial conversion is also a good option if you're unsure whether you need permanent life insurance or not. By keeping part of your term life insurance policy active, you can continue to benefit from the lower premiums that term life insurance offers while still enjoying the benefits of permanent life insurance.

When considering a partial conversion, it's important to review the permanent life insurance policies available to you and calculate the new policy cost. Permanent life insurance premiums are typically higher than term life insurance premiums, so you'll want to ensure you can afford the new premium payments. Additionally, some insurers may charge a one-time fee for converting your term life insurance policy.

You don't need a medical exam

One of the most significant benefits of converting from term life to permanent life insurance is that you can usually do so without needing to undergo another medical exam. This is because the insurance company will typically give you the same health rating as your original term life policy, even if that medical exam was conducted years ago. This means that your current health won't affect the premium on a permanent policy or your insurability.

Converting without a medical exam can be especially beneficial if your health has deteriorated since your original policy was issued, as it allows you to extend your coverage without going through the underwriting process again. If you were to apply for a new term life policy, you might have to pay much higher rates or could even be deemed uninsurable.

However, it's worth noting that not all insurance companies or types of insurance require a medical exam in the first place, especially if you're young and healthy or seeking a low coverage amount.

If you're considering converting your term life insurance to permanent coverage, be sure to verify the medical exam requirements with your insurance company, as they can vary.

It's a good option if your health has declined

If your health has declined, converting your term life insurance to permanent life insurance is a good option. This is because permanent life insurance guarantees a death benefit to your beneficiaries for as long as you maintain your policy. This is in contrast to term life insurance, which only covers you for a fixed period.

Converting to permanent life insurance can ensure that your loved ones will receive a financial payout when you pass away, regardless of how long you live. This is especially important if you have lifelong financial dependents, such as a child with special needs. Permanent life insurance can also help cover long-term care costs for a spouse or child after your death.

Another benefit of permanent life insurance is that it often has a cash value that builds slowly over time. This cash value can be accessed tax-free and used as a source of financial help in emergencies. Additionally, the cash value can be used to invest in other financial instruments, such as annuities, which can provide regular, fixed payments during your lifetime.

When considering a conversion, it is important to review the terms of your current term life insurance policy. Many policies allow conversions only after a certain number of years or until the policyholder reaches a certain age, such as 65 or 70. It is also important to note that premiums for whole life insurance are typically more expensive than those for term life insurance. Therefore, you should carefully consider your financial situation before making a decision.

In summary, if your health has declined, converting your term life insurance to permanent life insurance can be a good option to ensure lifelong coverage and provide financial security for your loved ones.

Frequently asked questions