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How does convertible term life insurance work?

Aug 22, 2022 5 Minute Read

With the right life insurance policy, you can provide your family with the financial security they need to navigate life’s big milestones, like college, home ownership, marriage, and having children. Term life insurance policies, which provide coverage for a set period, can be fine-tuned for specific goals like these. As your life and your goals change, however, your life insurance should change with them. Fortunately, some term life insurance policies are “convertible,” which means they can be exchanged for permanent policies.

How convertible term life insurance works

Convertible term life insurance lets you update your coverage to meet your needs. While you may also be able to extend the term of your life insurance, typically, individuals convert their term life policies into permanent life insurance plans, which have the benefit of accruing cash value and lasting through the end of one’s life. Permanent life options include whole life, which has fixed premiums, universal life, which has flexible premiums, and end of life or burial insurance.

Can you convert term to whole life insurance at any time?

Some convertible term life insurance policies enable policyholders to begin the conversion process at any time during their coverage period. However, other policies can only be converted several years or decades into the term.

If policyholders miss the term to permanent conversion deadline, their term insurance policies are no longer eligible for conversion. Individuals who want a convertible term life insurance policy should talk to their insurance providers about any fixed conversion periods before beginning their plan.

Reasons to convert term to permanent life insurance

Coverage needs and life circumstances change constantly, and converting to whole life or another permanent policy can provide financial security throughout changes. There’s no shortage of reasons to make the switch from term life insurance to permanent life insurance.

Your life insurance needs may have changed

Term life insurance offers your loved ones security as you plan for the future. However, when your goals, family situation, or career change, a permanent plan can provide longer-lasting coverage to meet those needs. For example, if you decide to marry or have children, you might end up with more dependents who rely, at least in part, on your income. Permanent insurance offers them more lasting security.

Your health has changed and you don’t want to take a medical exam

It can be difficult for people with pre-existing health conditions to obtain permanent life insurance at an affordable rate because they typically must undergo a medical examination to qualify. However, you can often convert to a permanent life insurance plan without having to complete another medical examination, which can be advantageous if you develop a serious health condition while a convertible term life insurance plan already covers you. Some convertible policies do require a new exam after several decades of coverage, so make sure you understand the terms of your own policy before you decide to convert it for this reason.

Alternatively, no medical exam life insurance policies offer people with chronic illnesses or a family history of medical issues an option for permanent life insurance. While premiums and death benefits may differ from traditional permanent policies, these offer quick approval and meaningful coverage.

Your life insurance budget has changed

Term life insurance policies are often a budget-friendly alternative to permanent options. Many people choose term life insurance as their first policy due to its relatively inexpensive premiums. If shifts in your career and income leave you more financially secure than when you initially applied for life insurance, it may be the perfect time to convert from term to permanent life insurance. Premiums will likely increase, but so will your coverage.

You’re looking to convert term to permanent life insurance for legacy planning

If you outlive your term life insurance policy, your beneficiaries will not receive a payout from it when you pass away. However, as long as you continue paying premiums on a permanent life insurance policy, your beneficiaries are guaranteed a lump sum death benefit, leaving them with the resources to cover your funeral or make up for the loss of your income. Converting your policy from term life to permanent life empowers you to leave your loved ones or even a charity of your choosing with a substantial monetary legacy.

How much does it cost to convert term life to whole life?

Fortunately, insurance companies do not charge any fee to convert life insurance policies. However, permanent life plans typically charge higher monthly premiums to account for your increased death benefit. Before you convert your plan, consider the following factors contributing to your monthly cost.

  • As with all life insurance policies, the older you are when you apply, the higher your premiums will be. You can save money in the long run by converting your plan as soon as you can afford it. Likewise, the longer you’ve had your term life policy when you convert, the more expensive monthly premiums will become.
  • You can minimize your monthly premiums by converting only a portion of your policy. For example, you could convert $100,000 of your $300,000 term life insurance plan to secure extra protection for childcare coverage during your child’s early years while still ensuring an end-of-life payout.
  • Finally, choosing the right permanent policy for your lifestyle and budget is critical for minimizing costs.

Find the right convertible term life insurance with eFinancial

If a convertible term life plan sounds like the right tool for planning your financial future, reach out to a licensed insurance agent today. They can walk you through various term life plans and options for converting them in the future. In addition, a licensed agent can help you navigate the wide range of insurance possibilities that might meet your current financial situation and future goals.