Convertible term life insurance is a term life insurance policy that you can convert into a permanent policy. Most term life insurance is convertible term life insurance.
The majority of life insurance shoppers purchase term life insurance, which lasts for a set period of time (usually between 10 and 30 years) before expiring.
Term life insurance is the best option for most people because as you get older, your financial obligations — such as paying off a mortgage or supporting children — usually decrease and life insurance coverage becomes less necessary.
Term life insurance is also the most affordable option, and it comes with few tax restrictions and fees.
But, as the end of your policy’s term approaches, you might find that you still need life insurance to provide a safety net for your beneficiaries. With convertible term life insurance, you can convert your term policy to a whole life policy or other permanent policy that doesn’t expire.
Most term life policies include a rider that lets you convert your policy to a permanent life insurance policy before the end of the term.
Converting a term life policy to whole life can be a good option for people who still need coverage toward the end of their term.
Policy conversions usually don’t require a medical exam or additional underwriting.
How does a convertible life insurance policy work?
Each insurance company and policy has its own rules and requirements for term conversion, but in general, the convertibility 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 products: There are many types of permanent policies. Your term conversion rider will include which ones are available to you to convert your policy to. Typical products 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 it 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.
When is convertible term life a good fit?
Making use of your policy’s convertible term rider might be a good option for you if:
You expect people to still rely on your income after your term expires: If you have a child with a disability or are 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.
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. For instance, 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 an active term policy until the end of the term.
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 want to convert your entire policy).
Finally, fill out some conversion forms with your insurer. You won’t have to go through underwriting or take a medical exam.
Converting to a permanent policy
If you think you may want to convert your term policy to a permanent policy, you should read over your policy or check with your insurance company to confirm when your conversion period starts and ends.
If you’re in the conversion period, you can start the process with your insurer or broker.
How much it costs 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 usually around five to 15 times 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 underwriting again and risk a higher health class, 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 term life insurance or you can’t afford the new premiums, you have options.
Purchase a new term life insurance policy
Given the steep cost of whole life insurance, it’s possible that taking out a new term policy at the end of your existing term will be a cheaper option than converting your policy.
Applying for a new policy will require going through the underwriting process again, but you could potentially save yourself hundreds of dollars in premiums each year.
Your premiums will depend on your age, your health, and your new term length.
You should compare quotes well in advance to determine if buying a new term policy will be cheaper then converting your current policy — that way if it isn’t, you still have time to convert.
Use the ladder strategy to “stack” term life insurance policies
Another option to explore if you’re seeking partial coverage is buying multiple term life insurance policies that expire at different times, known as the ladder strategy.
This method doesn’t involve policy conversion, but rather stacking, or laddering multiple term life insurance policies that expire at different times so you don’t pay for more coverage than necessary.
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.
Frequently asked questions
Does convertible term insurance have cash value?
Convertible term life insurance does not have a cash value. However, you can convert it to a permanant policy, which will have a cash value.
How does convertible term life insurance differ from renewable term life insurance?
Convertible term life insurance policies are term life insurance policies that you can convert to a permanent policy.
Renewable term life insurance is a one-year term policy that you renew each year at a higher premium. It cannot be converted to a permanent policy.
What is a 10 year convertible term policy?
A 10-year term policy is a life insurance policy that lasts for 10 years, then expires. If it’s a convertible term policy (which most term policies are), you’ll have the option to switch the policy to a permanent policy that won’t expire as long as you keep paying your premiums.