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Can Term Life Insurance Be Converted to Whole Life?
Can term life insurance be converted to whole life? In many cases, yes – we’ll explain what you need to know, and when this might be a good idea. If you’re still shopping for a term policy and want the chance to convert, make sure you tell your agent. If you already have a term policy and aren’t sure if it includes a conversion option, your agent can look this information up for you.
Term Life vs. Whole Life
First, let’s take a look at the differences between the two policy types:
Term life is the simplest and most affordable type of coverage. You select a term length for your coverage, and a death benefit amount. The life insurance company sets a price for your coverage based on your age, health, and lifestyle. That price is locked in for the length of your term, no matter whether that’s 5, 10, 20, 30, or 40 years. When your term ends, so does your coverage. Depending on your insurer, you may have the option to convert your policy to a permanent whole life policy. Also depending on your insurer, you may have the option to renew your term policy on an annual basis, with the price increasing sharply with each renewal. To learn more, check out our post on what happens to term life insurance if you don’t die.
Whole life covers you for your entire life. Unlike term life, it doesn’t expire. It also comes with a cash value component – an account attached to your policy that fills up over time with portions of your payments as well as interest paid by your insurance company. That cash value grows tax-deferred over time. Later, you can borrow against it with a policy loan from your insurer, or you can make a partial withdrawal. You only owe income tax on any cash withdrawn that is over the amount you’ve already paid into the policy. To learn more, check out our post on using whole life to create wealth.
When people ask, “Can term life insurance be converted to whole life,” they’re generally looking for the two main benefits whole life provides: lifelong coverage and cash value growth. If that’s what you’re looking for, conversion may be a good option for you. Next, we’ll go over how the conversion process works.
Get a free term life quote here on our website! Click the button below to get started, or call us at (800) 521-7873 to get your quote over the phone.
Can Term Life Insurance Be Converted to Whole Life?
That depends.
If your term policy includes a conversion option, yes. The catch? That conversion option must be in place when you buy the policy; it’s not something you can add on later. Many insurers offer this option, but you’ll need to check your policy documents to be sure.
If your policy is convertible, you would need to notify your insurer that you’re interested in making the conversion. You may also have the option to convert some but not all of your term policy, so you’ll need to know how much you want to convert, if that’s an option for you. The insurer can give you several quotes to see how much a partial versus total conversion might cost.
One important change to be aware of: your monthly payments will increase, so ask the insurer what the new rate would be. The good news? You won’t have to take a medical exam to convert your policy. The cost will increase, as we mentioned, both because you’re older now than when you bought the policy, as well as because whole life costs more than term life. However, the insurer cannot raise your rates any further if you’ve developed health issues in the meantime.
Want to ask a real person all your life insurance questions? Call us at (800) 521-7873 and we’ll go over all your options with you.
Reasons to Convert Term to Whole Life
Here are some of the reasons why you might want to convert your term policy into something that lasts for your entire life:
- You still have family members who depend on you financially. There are plenty of ways this could happen. Maybe a child moved back home after college. Maybe a child or your spouse became disabled and needs extra care and support. Maybe your family grew after you bought your policy, and you need coverage for longer than you expected. No matter the reason, if you still have people who depend on you to put food on the table and keep a roof over their head, we recommend you continue having coverage.
- You still have financial obligations you don’t want to burden your loved ones with. If you still have debt, for example, you may also want to continue coverage. Life happens, whether it’s an unexpected emergency, medical issue, or unforeseen family situation. Those problems usually take money to solve, and if your plan to pay down debt hasn’t worked out like you thought it would, your coverage may still be necessary.
- Your health has taken a turn for the worse. Life insurance pricing is based on your age, health, and lifestyle. There’s no getting around the fact that you’re older now than when you first bought your policy. And if you’ve had health problems in the meantime, that’s one more reason your rates may be significantly higher than before. If you couldn’t afford to buy a new policy from scratch after your term expires, conversion is one way you can keep your coverage at a more affordable price.
Can term life insurance be converted to whole life? That depends on your policy – let us help you figure it out! Call us at (800) 521-7873 and we’ll go over all your options with you.
Conversion Considerations
Before you make the decision to convert, here are a few things to think about:
- Is there a fee? Conversion may or may not be free; it all depends on your insurer. Make sure you ask ahead of time about any costs, and find out how or when they would need to be paid.
- Is there a time limit for conversion? Some insurers put a time limit on when you can convert. Sometimes it’s within the first 7-10 years of a policy; other times, the conversion window closes a year or so before the policy expires. There may also be an age-based exclusion, removing the conversion option if you’re over age 65. Check your policy documents or contact your life insurance agent to be sure.
- How is the cost of your coverage affected? Whole life costs more because it doesn’t expire and it contains cash value. When you convert, your policy will be repriced – and it will cost you more every month. Ask your insurer what the new monthly cost would be, and make sure you can commit to this new payment amount. You don’t want to convert, only to realize you can’t afford it. If you stop making payments and let your policy lapse, there won’t be any coverage in place to protect your loved ones.
- What would it cost to start over with a new term policy? If you’re still in good health, it may be worth comparing the increased post-conversion rate to the rate for a new term policy. If you only want the coverage to continue for the length of a particular financial obligation (as opposed to until you die), a new term policy may still be less expensive than a converted whole life policy. It’s something to consider if you’re on a tight budget.
Can term life insurance be converted to whole life? That depends on your exact policy – but is that the right decision for you and your family? We can help you figure it out. Call us at (800) 521-7873 and we’ll go over all your options with you. Or click the button below to get a quote for a new term life policy and see if it might be less expensive to go that route.
