Can you convert your current term life policy to whole life?
Many people who carry life insurance have a term life plan. These plans typically offer coverage over a period of 10, 20 or 30 years. This may be long enough to pay off a mortgage or to protect dependent children as they grow up.
However, if you don’t die during the period that you have term life insurance, the policy expires, and the money may never come back to you or your family.
Fortunately, the majority of term life policies offer “riders” that allow you to convert your term life policy to a whole life policy if you wish. You can check whether you have this option by reading through your policy or talking to your insurance company.
The question is, if you have the option, should you make the change?
Benefits of making the switch
Converting a term life policy to a whole life policy has certain benefits. The first is that your insurance policy will last until the end of your life as long as you pay premiums. This means that your loved ones are likely to receive some kind of payout when you pass away no matter how long you live. So, you may be able to help pay for the long-term care of a spouse or child after your death, which is why many people choose this option.
Most whole life policies also have a cash value that builds very slowly and can be a source of financial help in emergencies. In addition, you may be able to use the IRS Section 1035 exchange to trade in a whole life policy for an annuity, which pays you a regular, fixed payment while you are still alive.
Most importantly, converting a policy from term to whole life is often possible even if your health has worsened. In some cases, converting your policy may mean you don’t have to apply for a new policy or go through a medical exam or underwriting.
The right time to convert from term life to whole life
If you are interested in converting your term life policy to a whole life policy, you may want to review your current policy right away. Policies typically allow you to convert only after you have paid into a policy a certain number of years. It’s also common for policies to allow conversions only until the policy holder reaches a certain age, usually 65 or 70.
Finally, you want to consider whether you are at the right point in your life financially to convert. This is because the premiums for whole life insurance are often more expensive than those for term life.
Is converting to whole life insurance worth it?
Converting to whole life insurance may not be beneficial to people who are not in a stable position financially. If you’re unable to pay the more expensive premiums, you could lose your coverage totally, including any cash value you built up. One option may be to convert just part of your term life coverage to whole life. This saves you money on premiums but reduces your death benefit.
In some cases, especially where your health is still good, simply buying another term life insurance plan might be a cheaper solution. However, if you have a serious health condition that would make a new life insurance policy difficult or nearly impossible to get, converting your term life policy to whole life just might be your best bet.
Here’s one last thing to consider: As we mentioned above, a whole life policy is designed to remain in force no matter how long you live, so it can be one way to help make sure you leave a financial gift to loved ones. If that’s important to you, you might want to look into converting to whole life.
FAQs
Some insurers allow conversions at any time, but others may limit conversions to the first 10 years of a term policy. Longer conversion periods can significantly increase costs. Potentially unnecessary. You may not even need life insurance if you reach a point of financial wealth and stability.
When should you convert term to whole life? ›
When to convert term life insurance. You must decide to convert your term policy to whole life insurance before the original policy expires. It's best to make the change when you realize your circ*mstances are going to change or you need coverage longer than you first thought.
When should you stop getting term life insurance? ›
For most people, a term life insurance policy should last as long as your major financial obligations, like the length of your mortgage or until your kids are old enough to support themselves financially.
How much does it cost to convert term to permanent life insurance? ›
There is usually no direct cost to convert term life insurance to a permanent policy. However, your premium payments will likely be higher.
What happens to term life insurance if you don't use it? ›
If your term life policy expires while you're still alive, your insurance company will notify you that your coverage has ended, and you no longer need to pay your premium. If you still need coverage, it may be possible to renew your policy for a set period of time.
At what age should you stop whole life insurance? ›
At What Age Is Life Insurance No Longer Needed? Life insurance is no longer needed for many people once they reach their 60s or 70s. At this point they have retired, their kids have grown up, and they've paid off their mortgage and other debts.
Why is whole life better than term life? ›
Cash value? The pros and cons of term and whole life insurance are clear: Term life insurance is simpler and more affordable but has an expiration date and doesn't include a cash value feature. Whole life insurance is more expensive and complex, but it provides lifelong coverage and builds cash value over time.
When should you cash out a term life insurance policy? ›
Since a term life insurance policy doesn't come with a cash value component, it's not possible to cash it out. This policy solely includes a death benefit that your beneficiaries may receive if you die before the end of the policy's term.
Do you get money back if you outlive term life insurance? ›
When you outlive the term, with ROP life insurance, you get up to 100% of your premiums returned to you tax-free, minus administrative fees and related charges. You may not get a premium refund if you missed one or more premium payments or cancel the policy.
Why is term life insurance not worth it? ›
When is term life insurance not worth it? Term life insurance probably isn't worth the costs if you don't have any significant debts to pass on to your loved ones or you don't have dependents or a spouse that you'd leave in a bind by passing away.
Unlike permanent forms of life insurance, term policies don't have cash value. So when coverage expires, your life insurance protection is gone -- and even though you've been paying premiums for 20 years, there's no residual value. If you want to continue to have coverage, you'll have to apply for new life insurance.
At what point does a whole life policy pay the face amount? ›
A guaranteed death benefit: The level of the death benefit (the amount paid to your beneficiaries) is guaranteed never to decrease. A guaranteed cash value: A cash value that is guaranteed to grow at a set rate each year until it is equal to the face amount of the policy at a specified age, typically age 100 or 121.
What are the cons of permanent life insurance? ›
Permanent policies cost significantly more than term life policies. Universal and variable policies require careful monitoring to ensure the cash value performs well and the policy stays in force, making them riskier than term life policies.
When should you stop buying term life insurance? ›
If your mortgage is paid in full or your family's savings and supplemental income are enough to keep up with payments, you could consider canceling your term life coverage.
What is the main disadvantage of term life insurance? ›
Term Life insurance Cons: If you outlive the term length, your coverage will end and you won't receive any benefits. You will not be covered your entire lifetime and your policy will not accumulate cash value like an investment account does.
What will disqualify you from term life insurance? ›
Specific Conditions that May Disqualify You
Chronic diseases such as heart disease, cancer, diabetes, and high blood pressure are among the top concerns for insurers. Lifestyle factors like smoking, excessive alcohol consumption, and engaging in high-risk activities also play a significant role.
When should you get a whole life policy? ›
30 to 60 years old
Whole life or universal life policies, if you can afford permanent coverage, can provide more financial security for your loved ones. But if you have a lot of debt, you may opt for a high-value term life insurance policy until the debt is paid down.
How many years should you do term life insurance? ›
Consider a life insurance term length of at least 30 years. If your spouse is your designated beneficiary, they would receive the death benefit if you pass away within those 30 years, and they could use the payout for the remaining mortgage payments.
At what point does a whole life insurance policy endow? ›
Typically, a whole life insurance policy's premiums are set up to be paid until the policy endows (typically at age 100). A policy endows when the cash value equals (and becomes) the death benefit.
