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What Does It Mean To Convert A Term Life Insurance Policy?

If you are considering the purchase of a temporary (Term) life insurance policy, you may be wondering what it means to convert your term coverage.

Term life insurance only covers you for a specific number of years, usually between 10 and 30 years.

As you near the end of your Policy Term (Duration), you may realize that you want your life insurance coverage to continue beyond the original period of your insurance.

The good news is, you may not have to start over and purchase a brand new insurance policy.

Instead, you may be able to Convert your term life insurance into a whole life insurance policy without new evidence of insurability – meaning you won’t have to take a health examination to prove you are in good health so you can get insured.

If you’re considering converting your term life policy to whole life, there are several steps you can take to accomplish your goal.

Term Insurance vs. Whole Life

With term life, the Policyholder (Owner) chooses a period of time over which their policy is active – usually between 10 and 30 years.

The policyholder pays premiums to the insurance company until the end of the policy term. If the Insured Person dies within the policy term, their beneficiaries receive the death benefit proceeds from the policy, which is paid by the insurance company to the beneficiary. If the Insured is alive when the policy term expires, the Insured is left without any life insurance coverage when the term ends.

Whole life insurance, on the other hand, is a permanent insurance policy.

With whole life, you pay the same premium amount until you pass away.

Over time, the premium payments can build up some cash value inside the policy which can accumulate interest or returns.

You may be able to take out loans against this money or make withdrawals before you pass away.

However, if you do decide to borrow money against your life insurance policy, the amount you borrow may reduce the face value (Death Benefit) of the policy, and your beneficiary will receive a lower payout if you do not pay back your loan.

What Happens to Term Life Insurance at the End of the Policy Term?

You may be wondering, "What happens to term life insurance if you outlive the term?"

If you outlive your term policy, the premiums you paid are kept by the insurance company and your coverage ends unless you make arrangements in advance to convert or extend it if that option is available.

For example, if your term ends on February 2, 2021, and you pass away on February 4, 2021, without doing anything to convert or extend your policy, your loved ones will not receive any death benefit because the policy ended.

How to Convert Term Life Insurance to Whole Life Insurance

Knowing how to convert term insurance to whole life will help you if you decide you still want life insurance protection after you outlive your original term insurance policy.

Talk to your insurance company about what types of permanent life insurance are available for your conversion options, and the cost to convert to the new whole life policy – premiums will be higher for whole life, compared to what you were paying for your term life policy.

  • Fill out a life insurance conversion application.
  • Choose the amount of life insurance you’d like in the conversion.
  • Choose how you’d like to be billed for insurance premiums – quarterly, monthly or annual.
  • Enter your bank account information if you’re setting up automatic withdrawals, which will help make sure you don’t miss making any of your premium payments.
  • Assign beneficiaries who would receive the proceeds from your policy upon your death. Don’t forget to include their Social Security numbers.
  • Sign the application.
  • Mail, fax or upload the application.

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 insurance policy. If yours doesn’t have one, or if you’re not sure if you have a convertible term insurance policy, talk to your insurance company and find out – get their response in writing and keep a hard copy for your files.

Converting a policy requires contacting your insurance company and completing some forms for the conversion of coverage to whole life insurance.

Here are some Important Things to Know before Converting a Policy:

  • You Can Only Convert a Life Insurance 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 term life insurance policy into whole life insurance.
  • Usually, the conversion period starts between 1 to 5 years after your policy begins and ends either when the policy term expires or when you reach a certain age (usually between age 65 and 70).
  • The length and exact dates of the conversion period vary from life insurer to life insurer, so be sure to check your individual policy’s guidelines for conversion.

You Can Choose to Convert Just Part of Your Term Life 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 going forward.

Say you currently have a $300,000 term insurance policy that you want to convert to whole life coverage. Because the premiums on a $300,000 whole life policy might be to expensive for your budget and you might not need as much coverage later on — it might not make sense to convert the entire life insurance policy.

In this case, you could opt for a Partial Conversion.

For Example, if you choose to convert 50% of the policy, $150,000 of the policy would be converted to a whole life policy, but the other $150,000 would remain an active term policy until the end of your current policy term.

How Much Does It Cost to Convert a Policy to Whole Life?

When you convert your term policy to a whole life coverage, the conversion process won’t cost anything.

However, because whole life insurance is usually around 5 to 15 times more expensive than a term life policy, be prepared for your premiums to increase quite a bit after the conversion from term to whole life.

You may be able to offset some of the costs of moving from term life to whole life by opting for a partial conversion.

What is a Conversion Clause?

A conversion clause is a section in most life insurance policy contracts that allow policyholders to convert their term policy to a permanent form of life insurance – Whole Life.

Conversion clauses are important because they allow the Insured Person to continue life insurance protection with a new whole life policy without having to take a medical exam to prove evidence of their insurability.

Not all policies have a conversion clause, and policies that do have conversion clauses may cost more.

How Conversion of a Life Insurance Policy Works

Let’s say a man has a 15-year term policy with a 10-year conversion clause. Nine years into his contract, he develops COPD, diabetes or some other serious health condition.

Because he is still within the 10-year conversion period, he can convert his term life insurance policy to a permanent policy.

By converting to a permanent life insurance policy in time, he would not have to take a new medical examination and would be eligible for coverage through a permanent policy that might otherwise be difficult to obtain without the option to convert his existing life insurance policy into whole life coverage.

When to Use a Term Conversion Rider

There are several common reasons you might need to convert and extend your life insurance coverage past its original policy term:

People Still Rely on Your Income for Financial Support

If you have a child with a disability or provide financial support for your elderly parents, you may be providing for your dependents for an extended period-of-time.

Outstanding Debts Owed

You may have taken on some large debt in recent years that you don’t want to leave to your family members. If you have any outstanding credit card debt, mortgage payments, personal loans, or student loans, life insurance makes sure your loved ones aren’t left with the financial burden of paying off those loans when you die.

No Additional Underwriting to Get Insured

The main benefit of converting your existing term policy to a whole life policy: You won’t be required to undergo any additional underwriting or health exams.

This means that a policy conversion will likely cost less than taking out an entirely new policy, since you’ll be older 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 stay with the same insurance company using the conversion option to convert your term policy into permanent life insurance.

Review of Conversion

  • 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 still need coverage towards the end of their term
  • Policy conversions usually do not require additional underwriting

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What Does It Mean To Convert A Term Life Insurance Policy?

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