Term life insurance is promoted as a low-cost option to protect those who depend on your income in the event of your death. Term life insurance is more cost-effective than permanent life coverage since it covers you for a certain period rather than forever.
Additionally, unlike many permanent life insurance plans, term life insurance does not include a cash value component or internal policy expenses, making it more cost-effective.
If you get a policy with a term that lasts long enough, it will protect you and your family's finances until a significant milestone has been reached, like when the mortgage is paid off, or the last child graduates from college.
Converting Term Insurance to Whole Life Coverage
Applying for a new life insurance policy is more complicated than converting an existing term life policy to a permanent one. To determine if conversion is possible, you need the first review the policy's text.
Next, you should verify the conversion window or the time range in which the word may be converted. Policyholders can sometimes switch at any time throughout the policy's duration.
Henry Hoang, CEO of California's Bright Wealth Advisors and Bright Life Insurance, warns that many companies would put time constraints on conversions. For a policy with a 20-year term, for instance, the option to convert coverage may only be available during the first decade of coverage.
Term vs. Whole and Universal Life
In the case of your death during the policy's term, you will get a death benefit from your term life insurance policy. It can run anywhere from a year to three decades, and you'll be required to pay premiums to the insurance company.
Term life insurance often costs far less than permanent insurance of the same value because of its defined expiration date. However, term life insurance does have certain drawbacks. To begin, you'll need to buy either another term insurance or a permanent one if you want to keep your current level of coverage in the future.
What Is A Conversion?
Many term plans allow you to convert all or part of your "term" death benefit into permanent insurance, a feature known as "conversion." A whole life or universal life policy will do, but sometimes you won't even have a choice. When you switch from term to permanent life insurance, you're getting a brand new policy.
Even if you've developed one or more health difficulties since you applied for the initial term policy, the rate you'll pay depends on your health status when you used the policy and your current age when you convert a life insurance policy.
Is There a Time When Conversion Is Appropriate?
For financial advisor and vice president of The Haney Company in Maryland, Brian Haney, the "optimal moment to convert is a very subjective dynamic given there are typically multiple reasons why you convert, how much, and when," he wrote in an email to The Balance.
Haney stated that monetary considerations account for the majority of conversions. For younger workers with several financial obligations, "the correct amount of insurance protection with a term policy" may be the best option, as explained by Haney.
How To Make The Switch From Term To Permanent Life Insurance
According to Haney, one of the advantages of converting from term life to whole life or universal life insurance is that "there should be no medical factor so they cannot refuse you if your health has changed." Changing formats is an easy process:
Call Your Insurance Agent or Company
They should be able to tell you if your policy is convertible and if there is a time limit on making the change. You should know whether or not your insurance may be converted and, if so, to what extent before you buy it.
Please Fill Out The Application
Haney said that "even if there's no medical [exam] involved, there is still a change to the policy itself, frequently creating a new policy—so there is some processing time on the side of the insurance company."
Get Rolling With The New Premiums.
Haney promised that new coverage might begin using the client's preferred payment method after accepting the application.
The Conclusion
Changing your term policy to a permanent one might provide you with the advantages of both forms of coverage. Permanent insurance is more expensive than term insurance for the same amount of protection. Still, it allows you to save money in the format of a cash value and have your protections in place even after the term policy has expired.
