Cost & Coverage
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After your term life insurance expires, it’s possible to convert it into whole life insurance using a mechanism built into most term policies.
Life insurance offers your loved ones protection from the risk of your untimely death and the loss of your financial contributions they rely on. The two most common types of life insurance are term life insurance whole life insurance.
Term life and whole life both offer similar coverage, but term coverage only lasts for a predetermined period of years, the eponymous term, during which you pay premiums but after which you’re no longer covered. Whole life coverage lasts your whole life, but you’ll only have to pay premiums on it for a set number of years or until you reach a certain age. Because you have a lower risk of dying while a term policy is in effect, you’ll pay considerably lower premiums than you’d pay for a whole life policy.
If you want to continue receiving the coverage you enjoyed under a term policy after it expires, it’s possible to convert your term life insurance into whole life insurance using a mechanism built into most term policies. You won’t necessarily receive more benefits – in fact, in some cases, you may opt for lower benefits – but by converting a term life policy to a whole life policy you could save on premium costs associated with taking out a new whole life insurance policy.
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Term life insurance is usually enough to meet most people’s needs. The younger and healthier you are, the lower your premiums will be, and by the time your term has ended, all your dependents and the people who rely on you financially hopefully won’t rely on you anymore. And best of all: you’re still alive and planning your retirement.
But many people have dependents that continue to depend on them even in old age. That could be the case if a dependent has a chronic illness that leaves him or her unable to work, or if a miserable economic environment has forced your dependent to move back home. For that reason, you’ll want to make sure this dependent remains covered under your policy. You can’t always plan for situations when an independent family member suddenly becomes dependent again, but you can plan to make sure he or she is financially secure.
Important bills like mortgage or auto loan payments could dog your dependents even in your twilight years. You may also decide that you haven’t left enough money to your family and hope to bank on a life insurance death benefit to make up some of the difference. Some of these situations may not become obvious until you’re nearing the end of your term life insurance policy, in which case you may want to extend it by converting it into a whole life policy.
One additional benefit of term conversion is that in most cases, you won’t have to undergo underwriting again, which is the process by which the life insurance company determines your premium. That means no medical exam.
The ability to convert your term policy into a whole life policy comes from the term conversion rider, which is included on most term life insurance plans. (If yours doesn’t have one, or if you’re not sure, talk to your insurer.) When you’re ready to convert, just let the life insurance company know. You may have to fill out some forms, but the insurer should be able to tell you what to do.
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Certain qualifications apply. Namely, you can only convert your term policy during the conversion period, which starts between two and five years after your policy goes into force and ends at some point between age 60 and 90, depending on your carrier and the specific term life insurance product you purchased from them. There are sometimes limits on the death benefit amount, and some insurer even require you to purchase a minimum amount of coverage.
In most cases, you won’t have to go through underwriting again, which means you won’t have to take another medical exam life you did when you first signed up for term life insurance. But that’s not true in every circumstance. The following types of conversion from term to whole could trigger full underwriting:
Your term policy may have a rider that extends coverage to other people, such as riders that provide coverage to your children or to “additional insured” people, like a spouse. You may be allowed to to convert that pseudo-policy coverage into an actual policy that covers the person.
You may also be able to convert multiple term life policies into one whole life policy, whether or not the multiple policies cover just you or are spread across multiple insured people.
Keep in mind that whole life insurance is much more expensive than term life insurance, and your premiums will definitely increase if you convert your term plan into a whole life plan. The increase could be as much as six to 10 times your current premiums.
When you’re older and have fewer dependents, you won’t need as much life insurance coverage. For that reason, when you convert your term life insurance policy into a whole life insurance policy, you may consider converting only a part of the term coverage in return for lower premiums than you’d pay for converting the entire amount.
Say you currently have a $500,000 term life insurance policy that you want to convert into a whole life policy. But a $500,000 whole life policy might be prohibitively expensive and your dependents don’t need that much money to keep the lights. At the time your term life policy expires, your dependents may only need half that, so you can convert 50% of the term policy into a whole life policy.
In the above example, you’ll start paying premiums on $250,000 whole policy while also paying premiums for the remaining $250,000 term life policy while that term remains unexpired. When it does expire, you’ll no longer have that $250,000 in term coverage, but you’ll continue to have $250,000 in whole life coverage.
Life insurance companies understand that when you go from a term life insurance policy to a whole life insurance policy you’ll have to pay a massive increase in premiums. To incentivize you to make the switch, your carrier may offer you a term conversion credit against the premiums in your first year.
The term conversion credit is calculated based on the target premiums you’d pay for the amount of term coverage you converted into whole life coverage as well as the type of whole life insurance policy you’re taking out. (Read more about the different types of whole life policies here.
The credit reduces the amount you’ll pay in premiums for whole life coverage in the first year of the conversion, although the amount will be prorated for partial conversions and reduced by the amount of commission your agent receives.
Additionally, you won’t be eligible to receive a term conversion credit if you’re executing the term-to-whole conversion after a certain age, which is defined in your carrier’s literature about conversion.
It doesn’t cost you anything you convert your term life policy to a whole life policy. However, your premiums could go up by hundreds of dollars. That’s because whole life insurance is frequently as much as four times more expensive than term life insurance. The average cost of term life insurance coverage for a man in his mid- to late 30s is $35 per month for a 30-year term, but that same customer will pay between $122 and $196 per month for comparable whole life insurance coverage.
The term conversion credit will take some of the sting out of the increased premiums, but only for the first year of the new whole life coverage.
But when your term expires, you could actually save money by executing a term conversion instead of taking out a completely new whole life policy. That’s because you probably won’t have to go through underwriting again, meaning that the life insurance company won’t use your age and health situation to quote you a higher premium.
Policygenius’ editorial content is not written by an insurance agent. It’s intended for informational purposes and should not be considered legal or financial advice. Consult a professional to learn what financial products are right for you.
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