Why should you consider converting term life to whole life insurance?
One of the benefits of a term life insurance policy is that you typically choose which term length fits your budget and life plans. These policies are usually set to expire 10 to 30 years after purchasing them, often when you predict your dependents will no longer need the benefit and you'll have paid off any debt. However, coverage is sometimes still needed even after the term life insurance policy expires. While the process and reasons for converting from term to whole life insurance vary, there are several common scenarios in which switching makes sense.
You're still providing for dependents
The most common reason you might obtain term life insurance is to continue providing for your dependents after you're gone. 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. Life is unpredictable, and situations occur where your loved ones can no longer live independently or develop a condition that requires them to depend on you. In these scenarios, converting term to permanent insurance can help provide for the originally unexpected needs of loved ones.
You have outstanding debt
Policyholders often choose term life insurance to pay off any outstanding debt in case they pass away unexpectedly. However, when your term policy expires, you may still have outstanding debt that life insurance could help pay off when you pass. 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 (as you would with a completely new policy), the insurer would take into account your current age and any health conditions you may have developed — which could ultimately disqualify you from coverage if you were deemed a risk to insure due to your health.
A benefit of skipping the underwriting process is that the converted policy might cost less than a new one would. That's because by converting term life insurance to whole life, the company may refer to the underwriting process from your previous policy and forgo new health-related evaluations.
How to convert term to whole life insurance
When switching from term to whole life insurance, you need to determine if your term policy has a conversion provision written into the policy or a term conversion rider. To find out if your policy allows for conversions or has a rider, you should be able to look for it in your policy terms. Or you can contact your life insurance company so they can talk you through your options. If you're shopping for term life insurance, ask ahead of time if your policy will have a term conversion life insurance rider in case you ever want to switch it over to a permanent option.
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.
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.