Converting a term life policy to a whole life policy

Depending on your circumstances, you might need to convert your term life insurance policy to a permanent life insurance policy at some point. Most term policies include a built-in conversion rider that allows you to make the switch.

Jennifer Pan

Jennifer Pan

Published December 23, 2019

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 need to keep supporting dependents after their term life insurance expires

  • Policy conversions usually do not require additional underwriting

  • Converting your policy will significantly increase your premiums, so make sure you’ve evaluated your alternatives, such as taking out new term policy

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 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 you stop needing life insurance coverage.

But, of course, anyone’s circumstances can change. As the end of your term policy approaches, you might find that you still need life insurance to provide a safety net for your beneficiary or beneficiaries in the event of your death. In this event, you may be able to convert your term policy to a whole life policy or another type of permanent life insurance.

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. Read on to learn how a life insurance conversion works, and whether it’s the right move for you.

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Why convert a term life policy to a whole life policy?

In the best case scenario, you’ll stop needing life insurance coverage by the time your term policy expires — generally 10 to 30 years after you first purchased it — because your dependents won’t be relying on your income anymore, and you’ll have paid off (or nearly paid off) any debt you have.

However, 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 him or her unable to work. Or maybe you’ve taken on some unexpected debt in recent years that you don’t want to leave to your family. There are a number of reasons why you might need to extend your life insurance coverage past its original term, perhaps indefinitely.

The main benefit of converting your existing term policy to a whole policy — rather than applying for a brand new whole life insurance policy — is that in most cases, you won’t be required to undergo additional underwriting, which requires a medical exam and an assessment of your lifestyle. That 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.

How to convert your life insurance policy

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, talk to your insurance carrier.)

Converting a policy requires contacting your insurance carrier and completing some forms. Here are a few other things to know beforehand:

You can only convert a policy during the conversion period

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 two to five years after your policy goes in force, and ends either at the end of your term or at a certain age (usually between 65 and 70).

The length and exact dates of the conversion period will vary from insurer to insurer, so be sure to check your individual policy’s guidelines.

You can choose to convert just part 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 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 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.

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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 whole life insurance is usually around 6 to 10 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.

Term conversion credits

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, many carriers offer a term conversion credit that reduces your premiums for the first year 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 first year, you’ll be charged the full amount for your new whole life premiums.

Alternatives to life insurance conversion

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.

You can get a range of quotes for term life insurance using our free life insurance comparison tool.