What is convertible term life insurance?

Convertible term life insurance is a term policy with a provision that allows you to convert it to a permanent life insurance policy without undergoing underwriting.

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Rebecca Shoenthal

Rebecca Shoenthal

Editor & Licensed Life Insurance Expert

Rebecca Shoenthal is a licensed life, disability, and health insurance expert and a former editor at Policygenius. Her insights about life insurance and finance have appeared in The Wall Street Journal, Fox Business, The Balance, HerMoney, SBLI, and John Hancock.

Edited byAntonio Ruiz-Camacho

Antonio Ruiz-Camacho

Associate Content Director

Antonio helps lead our life insurance and disability insurance editorial team at Policygenius. Previously, he was a senior director of content at Bankrate and CreditCards.com, as well as a principal writer covering personal finance at CNET.

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Kristi Sullivan, CFP®

Kristi Sullivan, CFP®

Certified Financial Planner

Kristi Sullivan, CFP®, is a certified financial planner and a member of the Financial Review Council at Policygenius. Previously, she was a regional consultant at Fidelity Investments for nine years.

Updated|4 min read

Convertible term life insurance is a term life insurance policy that includes a rider that allows you to convert your policy to 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. It's also the most affordable option.

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 does not expire.

Key takeaways

  • Most term life policies include a rider that lets you convert your policy to a whole life 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 towards the end of their term

  • Policy conversions usually do not require additional underwriting

How a convertible life insurance policy works

Each insurance company and policy has its own rules and requirements for term conversion, but in general, the rider includes these provisions: 

  • Conversion period: When you can convert your term policy to a permanent policy. Some typical conversion periods: before the term ends or up to age 70, whichever comes first; during the first 20 years of a 30 year policy; before the policy’s tenth anniversary

  • Available products: There are many types of permanent policies. Your term conversion rider will detail which ones are available to you to convert your policy to. Typical products: whole life insurance, universal life insurance 

  • Whether partial conversions are allowed: Some insurers allow you to convert just part of your policy to permanent coverage. There is usually a minimum amount that you can convert. Typical minimums: $50,000 to $100,000 

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Should you consider convertible term life insurance?

Most term life insurance policies include a convertible term life insurance rider. But it’s good 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, perhaps indefinitely.

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 have 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 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. Because the premiums on a $500,000 whole life policy might be prohibitively expensive and you might not need as much coverage later on — 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. 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. And though you won’t have to go through underwriting again and risk a higher health class, your new premiums will be based for 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 (sometimes more) of the conversion. Though this type of discount may take some of the sting out of the initial premium increase, 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 might be a cheaper option than converting your policy. Though applying for a new policy will require going through the underwriting process again, you could potentially save yourself hundreds of dollars in premiums each year, depending on your age, your health, and how much longer you think you’ll need life insurance coverage.

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.

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 allow you to convert the policy 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 will have the option, during the conversion period, to switch the policy to a permanent policy that won't expire as long as you keep paying your premiums.

Author

Editor & Licensed Life Insurance Expert

Rebecca Shoenthal

Editor & Licensed Life Insurance Expert

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Rebecca Shoenthal is a licensed life, disability, and health insurance expert and a former editor at Policygenius. Her insights about life insurance and finance have appeared in The Wall Street Journal, Fox Business, The Balance, HerMoney, SBLI, and John Hancock.

Editor

Associate Content Director

Antonio Ruiz-Camacho

Associate Content Director

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Antonio helps lead our life insurance and disability insurance editorial team at Policygenius. Previously, he was a senior director of content at Bankrate and CreditCards.com, as well as a principal writer covering personal finance at CNET.

Expert reviewer

Certified Financial Planner

Kristi Sullivan, CFP®

Certified Financial Planner

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Kristi Sullivan, CFP®, is a certified financial planner and a member of the Financial Review Council at Policygenius. Previously, she was a regional consultant at Fidelity Investments for nine years.

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