Convertible term life insurance is a type of term life insurance that you can convert into a permanent policy. Many term life policies offer this feature.
Most term life policies last between 10 and 30 years — then, they expire. At the end of this period, you can convert your term life policy to a whole life insurance policy or other permanent policy that doesn’t expire. Your coverage options will depend on your insurer’s guidelines.
How does a convertible life insurance policy work?
Each insurance company has its own rules and requirements for policy conversion, but in general, the term conversion rider includes these provisions:
Conversion period: This is the time frame when you can convert your term policy to a permanent policy. Usually you can convert before the term ends or before you turn 70, whichever comes first. With some other policies, you can convert during the first 20 years of a 30 year policy, or before the policy’s tenth anniversary.
Available policies for conversion: Your insurer will specify which types of permanent life insurance you can choose from when you convert your policy. Typical coverage options include whole life insurance and universal life insurance.
Whether partial conversions are allowed: Some insurers allow you to convert just part of your policy to permanent coverage. There’s usually a minimum amount that you can convert — often $50,000 to $100,000.
Should you consider convertible term life insurance?
Most term life insurance policies include a convertible term life insurance rider. It can be beneficial to understand how this feature works, and why you might want to use it.
There are a number of reasons why you might need to convert and extend your life insurance coverage past its original term.
Making use of your policy’s convertible term rider might be a good option for you if:
You expect people to rely on your income at the end of your term: If your children still depend on you financially or you’re providing for aging parents, you may need coverage beyond the initial term you purchased.
You’ve taken on additional debts: If you’ve taken on some unexpected debt that you don’t expect to pay off before your term expires, converting to a permanent policy can protect your family from that debt.
You’ve developed a health condition that might make buying a new policy more expensive. If your health has changed since you bought your original policy and you might not qualify for a new one, converting your term life insurance would guarantee you can keep some coverage for the rest of your life.
Do you have to convert all of your term policy?
Insurance companies may offer partial conversions in cases where you want to extend your life insurance coverage, but don’t need as large of a death benefit.
Say you currently have a $500,000 term life insurance policy that you want to convert to a whole life policy.
The premiums on a $500,000 whole life policy might be too expensive and you might not need as much permanent life insurance coverage — so it might not make sense to convert the entire policy.
In this case, you could opt for a partial conversion.
If you choose to convert 50% of the policy, $250,000 of the policy would be converted to a whole life policy, but the other $250,000 would remain active until the end of your original term.
The agent you’re working with will be able to tell you how much your premiums would cost, depending on how much of your coverage you choose to convert into a permanent policy.
How to convert your life insurance policy
First, contact your insurance company to confirm you have a convertible term life insurance policy, and that you’re within your policy’s conversion period. If you purchased a convertible term policy through Policygenius, you can contact us for help, too.
Then, decide how much coverage you need. Most companies offer partial conversions, so you might not have to convert your entire policy.
Finally, you’ll fill out some conversion forms with your insurer. You won’t have to go through the application process again, or take a medical exam.
How much does it cost to convert a policy?
When you convert your term policy to a whole life policy, the conversion process itself won’t cost anything.
However, because permanent life insurance is much more expensive than term life insurance, be prepared for your premiums to increase significantly after the conversion.
Although you won’t have to go through the application process again and risk a higher health classification, your new premiums will be based on your age at the time of conversion.
You may be able to offset some of the costs of moving from term life to whole life by opting for a partial conversion, or taking advantage of any conversion credits your insurer offers.
Some companies offer a term conversion credit that reduces your premiums for the first year of the conversion. Keep in mind that after the discount period, you’ll be charged the full amount for your new whole life premiums.
Alternatives to life insurance conversion
If you need coverage for longer than your term life insurance policy will provide, but your policy isn’t convertible or you can’t afford the new premiums, you have options.
Renew your existing term life policy. If you only need life insurance for a few more years, most term life insurance policies come with the option to renew coverage on an annual basis after the initial term. Your premiums will be based on your current age, and they’ll increase each year.
Purchase a new term life policy. Given the steep cost of permanent life insurance, it’s possible that taking out a new term life policy will be cheaper than converting your policy. You’ll need to complete a new application and medical exam.
Use the life insurance ladder strategy. This method doesn’t involve policy conversion, but rather stacking multiple term life insurance policies that expire at different times, so you don’t pay for more coverage than necessary later in life. This is called laddering life insurance policies.
If you’re not sure if you should convert your life insurance policy or buy a new one instead, speaking with a Policygenius agent can help.