Can you switch from term to whole life insurance?
Some term life insurance policies include a conversion privilege or rider that allows you to convert it to a whole life policy at some point before your policy's set to lapse. If your policy doesn't include this feature, then you may be able to add a term conversion rider which gives you the option to convert some or all of your term life policy to a permanent one, such as a whole life insurance policy.
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How does convertible term life insurance work?
If you have convertible term life insurance, you can typically convert it to a whole life policy without going through the underwriting process again. This generally means you won't have to answer health questions or complete a medical exam. If you're ready to make the switch, you need to contact your insurance company to begin the process. They'll walk you through the details, including how much of your existing coverage you can convert and how much the conversion may cost (insurers may charge a one-time fee to make the switch). After you've finalized the details, you'll have a new policy that provides lifelong coverage and offers a cash value component.
TERM CONVERSION DEADLINES
Your convertible term life policy may prohibit you from switching to a whole life policy within a certain number of months of your coverage's end date or after a certain age.
Why would you consider converting term life to whole life insurance?
While the process and reasons for converting from term to whole life insurance vary, there are several common scenarios in which switching may make sense.
You're still providing for dependents
Parents often obtain a life insurance policy that lasts until their children have reached legal age or graduated from college. However, you might find yourself unexpectedly caring for a family member in need, whether they're young or elderly. Converting from term to whole life insurance can help provide for the unexpected needs of loved ones.
You have outstanding debt
You may still have outstanding debt as you near your term life policy’s expiration date that life insurance could help pay off when you pass away. By converting from term life to whole life, you can maintain your coverage for the entirety of your life and protect your family financially.
Your health situation has changed
If you decide to convert term to whole life insurance, your insurance company might forgo the underwriting process and therefore allow you to avoid the medical exam and lifestyle assessment routinely required for a new whole life insurance policy. If you had to go through a new underwriting process, your insurer could disqualify you from coverage if you were deemed a risk to insure due to your health.
Your budget has changed
If you originally bought term life insurance for a more affordable premium, you may now be able to afford the higher premiums of a whole life policy, making a convertible term life insurance policy a worthwhile (and convenient) option.
You now want a cash value asset
Converting from term to permanent life insurance gives you access to a cash value component, which grows with interest over time. You can use your policy's cash value to borrow money, in the form of a life insurance loan, or even pay your premiums. Learn more about life insurance with cash value.
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 circumstances are going to change or you need coverage longer than you first thought. As soon as you decide to make the life insurance conversion, you should contact your insurance provider.
How much does it cost to convert from term life to whole life?
Some providers charge a fee to convert a term life insurance policy to whole life insurance. Your provider will give you an estimate for this charge, which is often partially based on the amount being converted.
You should also consider the higher premiums often associated with whole life insurance. Budget in those premiums and determine if you want to pay them monthly, quarterly, or annually.
Pros and cons of convertible term life insurance
| Pros | Cons |
|---|---|
| You gain lifelong coverage | ConsYour new premiums may be higher |
| Your new whole life policy accrues cash value | ConsYou may have a lower coverage amount |
| You avoid undergoing a new underwriting and health exam | ConsYou may have to pay a one-time fee |
Alternatives to switching from term to whole life insurance
A partial conversion
If your insurer allows it, a partial conversion enables you to convert only a portion of your term life policy to whole life — resulting in a death benefit smaller than the original one, with correspondingly lower premiums. The portion you don't convert would remain active as a term policy until the original term end date, which means you'd have two premiums to pay until the term policy expires.
You might consider a partial conversion for a couple of reasons:
- In the case that you pass away after the original term expires, you want to provide only a portion of the original term life policy's death benefit for your beneficiaries.
- You don't want to pay the significantly higher premiums that would result from converting your entire term life insurance policy to whole life.
A new term life policy
Purchasing another term life insurance policy could make sense if you only want life insurance coverage for a short amount of additional time rather than for the rest of your life.
Without the higher premiums of whole life insurance, a new term life policy can be a popular option, though your current health and age would likely affect your premium as you may need to go through a new underwriting process and medical exam.
A burial insurance policy
Another option available for those worried about leaving their family with funeral costs is to purchase final expense insurance. This type of life insurance is generally the most affordable and pays for end-of-life expenses.
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