Converting Term to Whole Life

Banner Life Insurance Company

Term life insurance is a short-term policy that typically lasts 10 to 30 years. Customers can convert their term life insurance policy to a permanent policy using a term life insurance conversion option, but do all of the leading life insurance providers offer conversion options? What kind of permanent things can you make? We’ll cover all you need to know about changing term to whole life insurance in this post.

Convertible Life Insurance

What does it mean to convert term life insurance to whole life insurance? Should I convert my term life to a lifetime commitment? These are two of the most often asked questions about life insurance conversion.

Term life insurance, as you may know, is temporary life insurance. You can convert some or all of your term policy to a permanent insurance through term conversion. Permanent life insurance covers you for the rest of your life. The majority of term life insurance contracts are convertible. They can “alter” or convert to a permanent policy in this way.

One type of permanent life insurance is whole life insurance. Permanent policies can also include:

  • Guaranteed universal life
  • Final expense
  • Universal life
  • Indexed universal life

Permanent life insurance is just a “category” of plans that can cover you for the rest of your life. Some term life insurance policies allow you to convert to a permanent life insurance policy at any time throughout your policy’s term.

When will I be able to convert my policy?

The deadline for converting your term life policy is your life insurance conversion period. The life insurance company will determine the timeframe and the sort of permanent coverage that is available. The items provided and the conversion timeframe are vary for each company.

What is the Process of Term Life Conversion?

Here’s an illustration:

Assume Mr. X holds a 30-year term life insurance with ABC Life Insurance. Mr. X must convert during the first 20 years of ABC’s 30-year term, according to the conversion period.

Mr. X has cancer or another illness seven years into his contract. Is his term life insurance convertible to whole life insurance? … Yes!

Mr. X may convert his policy to any of ABC’s conversion alternatives because he is still inside the 20-year conversion period. Mr. X will not need to take an exam and will be covered for the same amount.

Mr. X would risk outliving his term policy if he was unable to convert his coverage. He may now be uninsurable due to his cancer diagnosis. If he is able to get a new insurance, the premiums may be too expensive due to his preexisting health condition.

What Is A Conversion Credit For Term Life Insurance?

On their policies, certain life insurance companies will grant a term life insurance conversion credit. This means that if you switch your term life policy to one of their permanent life policies, you will receive a discount.

For the first year, this discount will cut your life insurance rate. This is normally accomplished by subtracting the current year’s premium from the first year’s payment on your permanent policy. Conversion credit is not available from every life insurance company.

The Top 7 Reasons Why Converting Term To Whole Life Is A Good Idea

  1. You’ll Most Likely Outlive Your Term Life Insurance

Term life insurance is fantastic because it is inexpensive. Their main danger is that it’s only temporary coverage, and if you outlast the insurance, your beneficiaries may never see a dollar. Your dependents will be assured a death benefit if you convert term life insurance to whole life.

  1. You’re a millionaire!

Maybe you’re not wealthy, but you’re certainly better off than you were when you bought your term life insurance. Remember that whole life insurance is more expensive, and some people cannot afford it. Even if you’re in good health, premiums are higher than term. It’s even more expensive if you have health issues.

As people get older, they tend to have more money. This is sometimes the ideal situation for converting your term life policy to a permanent coverage. You could have wished for a permanent policy when you were younger and now have the financial means to do so.

Check to see if you may convert all or part of your term policy with your conversion. Keep in mind that you should only convert the coverage you’ll need for lifetime coverage.

  1. Estate Planning And Taxes

If you’re wealthy, you should be aware that your heirs may be responsible for paying estate taxes when you pass away. The death benefit from a permanent whole life policy can be utilized to pay your estate taxes.

In 2017, federal estate taxes were imposed on any estate worth more over $5.49 million per person or $10.98 million per couple. Just remember that an inheritance from a deceased spouse will not result in your spouse owing estate taxes.

  1. You have long-term financial obligations.

When you pass away, your loved ones or dependents may require financial support. Your permanent insurance might be viewed as a savings account that you can utilize to provide for your dependents. This is commonly used for dependents who have special requirements or who require medical attention. A trust for your dependent might be funded with a whole life or permanent insurance. Always seek legal or financial advice from a special needs attorney or financial advisor. They’ll assist you in establishing a trust and selecting the appropriate coverage.

  1. Your Health Is Poor

This is significant because your health will not determine whether or not you can convert to a permanent insurance. Life insurance providers will not consider your current health when converting your policy. It’s extremely usual for people to acquire health problems during the duration of their term life insurance policy. Even if you have health problems, you can still benefit from converting the term to whole life.

You won’t have to take a medical test, and your health class rating will most likely be the same as when you got your term insurance.

  1. Your Long-Term Policy Premiums Stay the Same Forever

Your permanent life insurance premium will remain constant throughout your life. You’ll pay the same premium and won’t have to worry about rate hikes or policy switching as you did with term.

  1. Increase in Cash Value

A portion of your permanent life insurance premium is invested in a cash value savings account. Its growth is slow, but it is tax-deferred. You can borrow and use the cash value of a permanent policy in any way you desire. This gives you a substantial financial cushion in the event of an emergency. A term life policy does not have this feature.

However, unless you have no other funding choices, it’s not usually a good idea to withdraw the cash value from your permanent insurance. The reason for this is that if you wish to pay out your full policy while in the “surrender charge period,” you may be charged fees. The length of the surrender charge will be determined by the company.

A better method is to use your permanent insurance to save for your beneficiaries tax-free. Because permanent plans aren’t a substitute for appropriate retirement planning, you need also include a sound investing strategy. Purchase permanent life insurance only if you intend to keep it for a long time. Growing big cash reserves often takes many years.

How to Determine Whether Converting Term to Whole Life Is the Best Option

We hope our information on how to convert term life insurance to whole life insurance has been helpful. Please contact us if you have any questions about converting term life insurance, conversion possibilities, or anything else.

Every day, we assist people with their life insurance needs at Life Insurance Blog. We’d be delighted to help you as well. If you need assistance determining whether you can convert term life insurance to whole life or another permanent coverage, please contact us.

We are available to help you.