If you need more life insurance coverage when your term life insurance policy expires, you might be able to switch to a permanent life insurance policy.
The majority of life insurance shoppers purchase term insurance, which lasts for a set period of time (usually between 10 and 30 years) before expiring. Term life insurance works well 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.
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 beneficiary or beneficiaries. In this event, you may be able to convert your term policy to a whole life policy or another type of permanent life insurance that does not expire.
When you convert your policy, you won’t necessarily receive a higher death benefit — in fact, in some cases, you may opt for a lower amount — but you could potentially save on some of the costs associated with taking out a brand new whole life insurance policy.
However, converting your policy will significantly increase your premiums, so alternatives – such as taking out a new term policy – are usually a better option to save money.
Read on to learn how a life insurance conversion works, and whether it’s the right move for you.
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 need to support dependents long-term
Policy conversions usually do not require additional underwriting
For most term life insurance policyholders, the need for coverage coincides with the term length. So, by the time your policy expires — generally 10 to 30 years after it’s purchased — you no longer need coverage because your dependents are grown and don’t rely on your income anymore, and you’ve paid off (or nearly paid off) any debt you have.
There are a number of reasons why you might need to convert and extend your life insurance coverage past its original term, perhaps indefinitely. These are the main reasons why you’d want to convert a term to a whole life insurance policy:
You can’t always plan for situations in which an independent family member suddenly becomes dependent again. Perhaps your dependent has developed a chronic illness or disability that leaves them unable to work.
Maybe you’ve taken on some unexpected debt in recent years that you don’t want to leave to your family. If you have any outstanding credit card debt, mortgage payments or college loans, life insurance ensures your loved ones don’t get stuck with the financial burden if you’re gone.
The main benefit of converting your existing term policy to a whole policy — rather than applying for a brand new whole life insurance policy: in most cases, you won’t be required to undergo additional underwriting, which requires a medical exam and an assessment of your lifestyle.
This means that a policy conversion will likely cost less than taking out an entirely new whole life policy, since you’ll be older than you were when you first applied for life insurance, and may have developed new health conditions that could raise your premiums or even disqualify you from purchasing new insurance. When you convert a policy, your health class rating remains the same if you stick with the same insurance company.
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Most term life insurance policies automatically include a term conversion rider that allows you to convert your existing term policy to a whole life policy. (If yours doesn’t have one, or if you’re not sure if you have a convertible term life insurance policy, talk to your insurance company.)
Converting a policy requires contacting your insurance company and completing some forms. Here are a few other things to know beforehand:
The conversion rider of your policy will specify a conversion period, or a time frame in which you are eligible to convert your policy. Generally, the conversion period starts one to five years after your policy goes in force, and ends either when term expires or when you reach a certain age (usually between 65 and 70), based on policies offered by Policygenius in 2020.
The length and exact dates of the conversion period vary from insurer to insurer, so be sure to check your individual policy’s guidelines.
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 your dependents might not need that much coverage at this point in your life — 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. Though you’ll essentially have two life insurance policies (a $250,000 term life policy and a $250,000 whole life policy) until the term policy expires, you’ll be saving money compared to paying premiums on a $500,000 whole life policy.
|COMPANY NAME||CONVERSION GUIDELINES|
|AIG||Convertible for the length of the term or up to age 70, whichever comes first.*|
|Banner||For policies issued up to age 65, convertible for the length of the term or up to attained age 70, whichever comes first. For policies issued at age 66 or over, convertible during the first five policy years only.|
|Brighthouse Financial||For policies issued up to age 64, convertible for the length of the term or up to attained age 70, whichever comes first. For policies issued at age 65 or over, convertible during the first five policy years only.*|
|Lincoln Financial||Convertible for the length of the term or up to attained age 70, whichever comes first. *|
|Mutual of Omaha||Conversion restrictions vary by term length and policy type.|
|Pacific Life||Convertible for the length of the term or up to attained age 70, whichever comes first. Minimum Coverage Amount: $50k|
|Principal||Conversion restrictions vary by term length and policy type.|
|Protective Life||Conversion restrictions vary by term length and policy type.|
|Prudential||For policies issued up to age 59, convertible for the length of the term or up to attained age 65, whichever comes first. For issue ages 60 – 75, the conversion period ends on the 5th policy anniversary.*|
|SBLI||Convertible for the length of the term or up to attained age 70, whichever comes first.*|
|Transamerica||Conversion option is automatically included. Convertible for the length of the term or up to attained age 70, whichever comes first. For Preferred Plus policyholders, convertible for the length of the term or up to attained age 75, whichever comes first.|
*Other restrictions may apply.
The information above is based on 11 carriers that offer policies through the Policygenius marketplace and may vary by carrier, term, coverage amount, health class, and state. Not all policies are available in all states. Valid as of 10/20/2020.
When you convert your term policy to a whole life policy, the conversion process itself won’t cost anything. However, because whole life insurance is usually around 5 to 15 times more expensive than term life insurance, be prepared for your premiums to increase significantly after the 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.
Life insurance companies understand that when you convert from a term life policy to a whole life policy, you might experience some sticker shock at having to pay significantly higher premiums.
To incentivize policyholders to make the switch, 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.
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.
For instance, someone in their 60s who’s in good health and wants to extend their life insurance coverage for another 10 or 15 years will likely be able to find term life insurance rates that are cheaper than converting their policy to whole life. For that reason, it’s a good idea to compare quotes for new life insurance policies before deciding to convert your term policy to whole life.
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 only looking for a small death benefit to help cover end of life care or funeral costs,, and if your health or age disqualifies you from a traditional term life insurance policy, final expense life insurance might be a good choice. Although it’s more expensive than premiums on a term policy with a small death benefit and shorter term period, final expense life insurance is a type of permanent insurance that can keep your loved ones secure.
In most cases, unless you have a high net worth, taking out a brand new term life insurance policy is cheaper and favorable to converting your existing policy to permanent. You can get a range of quotes for term life insurance using our free life insurance comparison tool.
The conversion cost itself is $0, but your premiums will drastically increase (by 5 - 15 times) if you switch from a term life to a whole life policy.
Switching from one product to another, usually from term to whole. Because term life insurance policies expire after a certain period (the term), people seeking additional coverage may opt to convert their existing policy to permanent or whole life insurance.
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.
AD&D insurance only pays out the death benefit if you are seriously injured or die from an accident.
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