Term Life Conversion to Whole Life – 2024 Update
last updated on April 3, 2024Term life conversion to a whole life policy is possible. Most term life insurance policies sold in the market today come with a conversion feature that lets you convert some or all of your term life insurance policy into permanent life insurance such as whole life, variable or universal.
Your reasons for buying a life insurance policy may change as you grow older.
You might find term insurance the best choice when you were young, but today you might need a permanent policy that covers your entire lifetime. One convenient solution is converting some or all of your convertible term life policy to whole life.
Most term life insurance is convertible.
Term policy conversions to whole life are ideal if you decide you want protection for the rest of your life. You may also be able to convert some of your existing term life insurance to whole life insurance to be used for burial expenses.
You can discuss with our Funeral Funds agents to investigate if this option would be best for you. If you have any questions about life insurance conversion, feel free to call us at (888)862-9456 we can help!
FOR EASIER NAVIGATION:
- What Is The Difference Between Term And Whole Life Policies?
- What Happens When The Term Policy Expires?
- Term Policy Conversion To Whole Life
- What Is Partial Term Conversion?
- How Does A Term Policy Conversion To Whole Life Works?
- Reasons For Term Policy Conversion To Whole Life
- What To Do When You Missed Your Conversion Deadline
- Conclusion
- Additional Questions & Answers On Term Life Conversion To Whole Life
What Is The Difference Between Term And Whole Life Policies
Term life insurance is designed to give financial protection for a specific time like 10, 20, or 30 years. The death benefit is the only benefit of this plan. When the term ends, your coverage expires.
Some insurance companies let you automatically qualify for a new term when the term expires. You don’t need to take a medical exam. However, your premium will increase (it will often increase significantly).
The drawback to term insurance is that your rates and coverage amount are no longer guaranteed when the term ends. Most carriers will offer annual policy renewal at an increasing rate.
Features of term life insurance policies:
- Most affordable premiums
- Pure death benefits only
- Only pays the benefit if you pass away within the term of the policy
- In force for a specific term such as 10, 15, 20, or 30 years
- You can renew the term if you want to extend coverage after the term length.
- Rates increase as you age, rates increase depending on the age band
- It can be converted to whole life insurance
If your health has declined, it may be impossible to qualify for a new term policy. To help policyholders, many life insurance carriers offer convertible term life insurance.
What is a conversion option on term life insurance? If your term policy has a conversion option, you will be able to exchange your existing term policy for a whole life policy before your current term life insurance policy expires.
Many life insurance companies don’t advertise this added benefit, but it’s a benefit worth checking. You don’t have to submit to a medical exam when you convert your existing term policy because you’re guaranteed to be approved at your original health class.
When you convert term to whole life, your policy will then be permanent. Whole life insurance is permanent life insurance with an investment component. You are covered for life if you keep paying your premiums on time. A part of the premium covers the death benefit, and the remaining amount goes to the cash value.
Features of Whole life insurance:
- Lifetime coverage
- Provides death benefit payout and cash value that builds up over time
- It takes about 10 to 15 years to build sufficient cash value
- You can borrow or withdraw the cash value
- Available without a physical exam but more expensive
- Best for estate planning
- It can be more costly than term life but has the potential to save more money if the policy is in force for a lifetime.
What Happens When The Term Policy Expires?
There are two options available when the term period expires on your policy:
Option 1: Convert your term life to a permanent plan, either whole life or universal life. The premiums for these products are not determined since you don’t know what permanent life insurance products will be available at the conversion time.
Before purchasing a term life plan, check these tips before you decide to convert the policy later on:
- Make sure your term life plan can be converted to whole life later. Most term life policies are convertible, but you must confirm the policy before buying.
- Be clear about the deadline for conversion. Convertible policies only let you convert during a specific period. The conversion must happen before age 65, 66, or 70 or within the policy’s first 5 or 10 years.
- Review the conversion options available if you want to convert. Policies vary by carrier, so you’ll want to find out your options if you have to convert eventually.
Option 2: Pay an annual renewable rate. When the level term expires, the premium on the policy is no longer applicable and will increase yearly. You will never know the cost when you renew. There is an annual renewable premium amount in your initial contract, but it is not guaranteed to stay that way.
Term Policy Conversion To Whole Life
A term conversion means converting some or all of your term life insurance into a whole life insurance policy. This option is available if you want whole life insurance. Conversion options are typically included in your plan for free.
Term conversion can be done without considering your health condition as long as you convert before the specified deadline. Depending on the company, it can be a certain age, somewhere between 65 and 70.
Don’t wait too long if you want to convert your policy to whole life. Premiums are based on age, which is bound to increase as you grow older. When you convert, the longer you wait, the higher the premium you’ll pay for a whole life insurance policy.
What Is Partial Term Conversion?
A partial term conversion means taking a portion of your term policy and converting it to your whole life. If you do this, you will have one term life and one whole life insurance or two separate insurance policies.
Example:
You have a $500.000 30-year term insurance policy. You owned it for eight years, and you’re still within the 10-year conversion deadline from the company. You decide to convert $100,000 into a whole life policy.
There will be two life insurance policies: a $400,000 term policy with 22 years left and a $100,000 permanent policy that provides lifetime coverage.
Converting a portion of your term policy to your whole life will show the coverage amount left on your term policy.
For example, you were paying $55 per month for your $500,000 term policy; when you decided to convert the $200,000 to a whole life policy, your monthly premiums will then drop to $34 per month, which is the premium for a $300,000 policy.
You may opt for a partial term conversion if you’re having a hard time paying the premiums for a full conversion, or you don’t need the full amount to be converted to a whole life policy. Your plan should be within the minimum face amount even if you opted for partial conversion.
Example:
You have a $250,000 term policy with a minimum face amount of $100,000. If you convert $200,000 of the term to a whole life policy, you lose the remaining $50,000 on the policy because it is not enough to reach the minimum face amount.
Many life insurance companies will allow you to convert your policy in different amounts at different times, which helps offset the cost of converting term to whole life. It’s important to note that only some life insurance carriers allow partial conversions.
How Does A Term Policy Conversion To Whole Life Works?
Term conversion to whole life has an expiration date. The expiration date depends on the insurance product and the company. You must convert your term policy to whole life before the expiration date. You don’t need to go through the underwriting again, but they will consider your age.
You can convert your plan based on your current age or the age when you purchased your term policy (original age).
Converting based on your current age will cost more, but you don’t have to pay a lump sum at conversion. If you convert your plan based on your original age, you will need to pay all the back premiums and interest when you convert, but the premium would be cheaper.
To illustrate:
You’re a 50 years old male who is converting your 25-year term insurance policy. You plan to convert based on your original age. You bought your term policy when you were 40 years old, so the carrier based the price of your new whole life policy at age 30. Your premiums will be cheaper than a whole life policy acquired at age 50.
When you convert, you need to pay the insurance company an amount equal to the difference between the term life policy and what the premium amount would have been if you originally bought a whole life policy.
10 years of whole life premium – 10 years of term life premium = Lump-sum due to the insurance company
Your premium may be 10-15 times higher than your term life policy premiums when you convert to a whole life policy. That’s the cost to convert from term to permanent life insurance. Converting to whole life will increase your premiums because whole life insurance costs more.
But, if you need life insurance when you have health issues, converting term life to a whole life policy will likely be cheaper than applying for a new term insurance policy.
For example:
You’re 60 years old and bought a term life insurance policy 15 years ago. You were rated “Preferred” when you bought the policy because you were in excellent health. But now you have hypertension and diabetes. It will be impossible to get the same preferred rating today.
Here’s the benefit of term policy conversion to whole life: You can convert your policy to whole life at the same “Preferred” rating without submitting any evidence of insurability. So you will pay what every 60-year-old in excellent health would pay for whole life insurance.
BENEFITS OF TERM POLICY CONVERSION
Convertible term life insurance benefits include:
- You can have life insurance coverage for your whole life.
- You retain your original health rating from the term policy when you convert, even if you have medical issues or become uninsurable.
- You can decide when and how much coverage you want to convert, as long as it’s before the expiration date.
- You can start building cash value with your new whole life policy.
Reasons For Term Policy Conversion To Whole Life
Here are some of the reasons why you should think about converting term insurance to whole life.
Term life expires
Consider the pros and cons of converting term life to whole life.
If you outlive your term life policy, your beneficiaries will never collect on your term life policy. Term life is more affordable because it is designed to expire, and the company won’t have to pay up.
However, the insurance carrier will eventually have to pay for a whole life policy. When you die, your beneficiaries will get the money back, or you take the policy cash value.
Build savings
Whole life insurance is a tax-free savings policy for your family. A portion of the whole life insurance funds goes to the cash value that accumulates over the years on a tax-deferred basis.
You can withdraw from the cash value or borrow against it. You also have the option to surrender the policy for the cash value. Term life policy has no cash value.
You can now afford it
Whole life insurance is more expensive, but it can be more affordable now if you’re financially well off than when you bought your term life policy. It is especially true if you develop a health problem later in life. If you’re making more money and your financial situation has improved, that’s the right time to convert to a whole life policy.
Whole life is more costly than term life, but it can provide you with savings for your family to use as an emergency or retirement fund.
You have health issues.
You are not required to have a medical exam if you convert from term life to whole life policy.
If you let your term policy lapse and then apply for another policy, you’ll need to undergo a medical exam. You will likely not qualify for a policy if you have health issues. But, you bypass the medical exam when you convert your policy to whole life.
When you convert a life insurance policy, the insurance carrier will give you the same health rating as to your term policy even if you have health issues. The insurance company will not consider your current health condition when you convert your term policy.
Lifelong Dependents
It’s your advantage to take your conversion option from your term policy to your whole life if you have dependents that may need financial help after you die. A whole life policy can help fund a trust for your dependent upon your passing.
Think of the whole life insurance policy as a savings account to provide care for your dependent. It is especially true if that dependent needs financial help for care, such as if the child has special needs or medical needs.
Converting term life to whole life can leave money behind for your dependent care.
Level premium
The whole life premium remains the same for the rest of your life. Whole life insurance locks in the rate you will pay until you die. You don’t have to worry about rate increases in the future.
Estate planning
Term life insurance, while it offers lower cost, is not ideal for things like providing for a large estate. A whole life policy is a better choice for people with significant assets who want the policy for large estate planning.
When you’re looking for estate tax shelters, the best funding source is a whole life policy held in trust. It allows the proceeds to keep out of your estate when you die. The fund within the trust can be used to pay ongoing income to heirs depending on your estate planning goals.
What To Do When You Miss Your Conversion Deadline
If you’ve missed your term life insurance conversion period but are still in good health, you still have a few affordable options for life insurance.
If you’re 80 or younger, you can still qualify for whole life insurance options from many A-rated insurance carriers. In fact, most of the policies we offer even provide guaranteed coverage until age 120. This whole life policy allows you to lock in $5,000-$50,000 or more coverage until a set age without requiring an investment.
Guaranteed universal life policies are very similar to term insurance in way that it offers level rates and guaranteed benefits until age 90. This policy does not carry the investment risk attributed to non-GUL, and they do not build cash value. And this policy does not increase premiums as you get older. You pay the same premium from the policy issue until age 120.
Conclusion
Always take the time to talk with your life insurance agent to understand the ramification of borrowing against your cash value. Never assume that because you have a permanent life insurance policy, you should borrow against it.
If you’re considering converting your term life policy to whole life insurance, talk to our agents at Funeral Funds to get answers to your questions about the term and whole life insurance.
Need burial insurance? Instead of wasting hours talking to different agents, and answering the same questions repeatedly, let us do the work for you to find affordable burial insurance. Fill out the instant QUOTE form on this page, and we will give you the best rates available for final expense life insurance.
Funeral Funds is an independent insurance agency that can shop your application to many companies available. This way, you can be sure that you will get the best carrier that favors your age and health.
We work with the top-rated life insurance companies in the United States, many of which offer immediate coverage at the lowest rates.
If you need help finding burial life insurance, please don’t hesitate to contact us at (888) 862-9456.
Additional Questions & Answers On Term Life Conversion To Whole Life
Can term life insurance be converted?
Yes, most term life insurance policies can be converted to whole life insurance. This means that you can keep your coverage in place and simply change your policy type.
What is the advantage of converting term life to whole life?
The main advantage of converting to a whole life policy is that it provides lifelong coverage. Whole life also has the potential to build up cash value over time, which you can borrow against or cash in if you need to.
How do I convert my term life policy to whole life?
Converting your term life insurance policy to whole life insurance is straightforward. You will need to contact your insurance company and let them know that you want to convert your policy. They will then send you the necessary paperwork to complete the process.
What are the disadvantages of converting term life to whole life?
The main disadvantage of converting to whole life insurance is that it is usually more expensive than term life insurance. This is because whole life covers you for your entire life, whereas term life insurance only covers you for a set period.
What is a conversion option on term life insurance?
A conversion option is a feature of some term life insurance policies that allows you to convert your policy to whole life insurance without going through the underwriting process again. This can be a great option if you want to keep your coverage in place, but your health has changed since you first bought your policy.
What is the difference between term life insurance and whole life insurance?
The main difference between term life insurance and whole life insurance is that whole life insurance provides lifelong coverage, while term life insurance only covers you for a set period. Whole life also has the potential to build up cash value over time, which you can borrow against or cash in if you need to.
What happens when you convert term to whole life?
When you convert your term life insurance policy to whole life insurance, you are essentially just changing the type of policy you have. Your coverage will remain in place, and you will still be paying the same premium. The only difference is that you will now have a whole life policy instead of a term life.
What happens after 10 year term life insurance?
After your 10-year term life insurance policy expires, you will no longer have coverage. If you want to continue having life insurance, you must purchase a new policy or convert your term policy to a whole life policy. Whole life insurance is one option that will provide you with lifelong coverage.
Is a term conversion considered a replacement?
No, a term conversion is not considered a replacement. A replacement occurs when you cancel your old policy and purchase a new one. When you convert your term policy to whole life, you are simply changing your policy type. Your coverage will remain in place, and you will still be paying the premium.
Why would you convert term life to whole life?
There are a few reasons why someone might choose to convert their term life insurance policy to whole life insurance. The main reason is that whole life insurance provides lifelong coverage, while term life insurance only covers you for a set period. Whole life also has the potential to build up cash value over time, which you can borrow against or cash in if you need to.
How do term conversions work?
Converting your term life insurance policy to whole life insurance is straightforward. You will need to contact your insurance company and let them know that you want to convert your policy. They will then send you the necessary paperwork to complete the process.
How long do I have to convert my term life insurance policy?
Most insurance companies will allow you to convert your policy within a certain period, usually 10-20 years. However, it is important to check with your insurer to determine their conversion policy.
What are the benefits of converting term life to whole life?
Converting your term life insurance policy to whole life insurance is a few benefits. The main benefit is that whole life insurance provides lifelong coverage, while term life insurance only covers you for a set period. Whole life also has the potential to build up cash value over time, which you can borrow against or cash in if you need to.
Is term life better than whole life?
This is a difficult question, depending on your specific needs and goals. If you want coverage for a set period, then term life insurance may be a better option. However, whole life insurance may be a better option if you are looking for lifelong coverage.
What is the best age to convert term life to whole life?
There is no one “best” age to convert your term life insurance policy to whole life insurance as it depends on your specific needs and goals. If you are looking for coverage for a set period, then you may want to convert your policy sooner rather than later. However, if you are looking for lifelong coverage, you may want to wait until later to convert your policy.
How long is term life good for?
A term life insurance policy is only good for the set period, usually, 10-30 years, that you have coverage. Once that period expires, your coverage will end, and you will no longer have life insurance. If you want to continue having life insurance, you must purchase a new policy or convert your term policy to a whole life policy.
How much does it cost to convert term to whole life?
The cost to convert your term life insurance policy to whole life insurance will vary depending on several factors, including your age, health, and the death benefit of your policy. However, it is generally relatively inexpensive to convert a policy.
What is better term or whole life insurance?
This is a difficult question, depending on your specific needs and goals. If you want coverage for a set period, then term life insurance may be a better option. However, whole life insurance may be a better option if you are looking for lifelong coverage.
Is term life insurance worth it?
It depends on your specific needs and goals. Term life insurance may be a good option if you are looking for coverage for a set period of time. However, whole life insurance may be a better option if you are looking for lifelong coverage.
Should I convert my term life insurance to whole life?
It depends on your specific needs and goals. If you are looking for coverage for a set period, then you may want to convert your policy sooner rather than later.
What does a face amount plus cash value?
The face amount is your policy’s death benefit, while the cash value is the money accumulated over time through your premiums. The cash value can be borrowed against or cashed in if you need to.
What is the longest term life insurance you can get?
The longest term life insurance policy that you can get will depend on several factors, including your age, health, and your policy’s death benefit. However, most policies have a term of 10-30 years.
What happens at the end of term life insurance?
Your coverage will end at the end of your term life insurance policy, and you will no longer have life insurance. If you want to continue having life insurance, you must purchase a new policy or convert your term policy to a whole life policy.
How much does Dave Ramsey recommend for term life insurance?
Dave Ramsey recommends purchasing a term life insurance policy with a death benefit 10-12 times your annual income.
Does term life insurance have a cash value?
No, term life insurance does not have a cash value. Once your policy expires, you will no longer have coverage. If you want to continue having life insurance, you must purchase a new policy or convert your term policy to a whole life policy.
When should I drop my term life insurance?
You should drop your term life insurance when you no longer need coverage. This could be when your children are grown and no longer dependent on you or when you have other sources of income to support your family in the event of your death.
Do I get money back if I cancel my term life insurance?
You will not get any money back if you cancel your term life insurance policy. The only way to get money from your policy is to die while it is in effect.
What happens to term life insurance if you don’t die?
If you don’t die while your term life insurance policy is in effect, it will simply expire. You will no longer have coverage and will not get any money back.
Does term life insurance premium increase with age?
Yes, your term life insurance premium will increase as you age. This is because the older you are, the more likely you are to die.
What is the shortest term life insurance?
The shortest-term life insurance policy is typically a one-year policy. However, some insurers offer shorter terms, such as six months.
What are the benefits of term life insurance conversion?
Some benefits of term life insurance conversion include having coverage for life, cash value accumulation, and the potential to save on taxes.
Can I get 40 year term life insurance?
Yes, you can get a 40-year term life insurance policy. However, only a handful of life insurance companies offer this policy.
What is the best time to convert term life insurance?
The best time to convert your term life insurance policy to a whole life one is when you are younger and in good health. This way, you will have a lower premium and more time for your cash value to grow.
What happens if I outlive my term life insurance policy?
You will no longer have coverage if you outlive your term life insurance policy. However, some policies allow you to convert your policy to a whole life policy to continue coverage.
When shopping for life insurance the best strategy is to?
When shopping for life insurance, the best strategy is to work with a qualified life insurance agent who can compare quotes from multiple insurers. This way, you can get the best rate for your coverage.
Is it worth converting term life to whole life?
Whether or not it is worth converting your term life insurance policy to a whole life policy depends on your individual needs and circumstances. You should speak with a qualified life insurance agent to determine if this is your best option.
How do you convert term to whole life?
To convert your term life insurance policy to a whole life policy, you will need to contact your life insurance company and request a conversion. There may be a fee associated with this process.
What is the difference between porting and converting a life insurance policy?
The difference between porting and converting a life insurance policy is that porting allows you to keep your same coverage and terms when you switch to a new life insurance company, while converting results in a new policy with different coverage and terms.
Do you get your money back at the end of a term life insurance?
You will not get any money back if you don’t die during your life insurance policy. The only way to get money from your policy is to die while it is in effect.
What happens when term life insurance is paid up?
You will no longer have coverage when your term life insurance policy is paid up. If you die, your beneficiaries will not receive any money from the policy.
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