Tips to convert term life insurance to whole life insurance
There are many types of life insurance that can help protect you and your family. Term life insurance is a popular choice for younger individuals who are looking for cost-effective coverage, especially if they’re not ready to commit to something more permanent, such as whole life. While term life insurance provides coverage for a defined length of time, there are certain term policies that give you the option to convert to permanent life insurance down the line.
What’s advantageous about choosing a convertible term policy? Here are a few points to consider:
A closer look: term life insurance
Term policies are often more cost-effective than permanent life insurance policies because of their lower premiums. They offer a range of options on coverage periods, such as 10-, 20-, or 30-year terms. On some term life products, unique riders1 may also be available, such as the ability to donate an extra 1 percent of the death benefit —to any qualified 501(c) (3) charity of the policy owner’s choosing.2
However, a term policy may end while you are still living, and it may cost you more to re-insure when you are older or with possibly more health issues.
A closer look: permanent life insurance
Permanent life insurance, like whole life, can be an option for those looking for coverage with additional benefits beyond traditional death benefit protection. A whole life insurance policy provides coverage for as long as you live, its premiums stay leveled and will never increase, and it offers a unique living benefit – its cash value.3, 4 There are no restrictions on what you can use the cash value for, or when you use it. This can be a great way to help fund larger goals like a home purchase, college tuitions, or to supplement your own retirement income. Additionally, your cash value growth is insulated from the ups and downs of the market, making it a more stable asset in your financial portfolio. When choosing permanent life insurance, you typically have a choice between whole life and universal life.5, 6, 7
One thing to note: You may have heard that permanent life insurance policies are expensive.8 Yes, they indeed do cost more than a term life policy, but that is not the entire picture. It’s important to remember that a whole life policy covers your entire lifetime, not just a set number of years, and provides additional living benefits.
Making the conversion: benefits for now and later
Cost can be an important factor to consider when shopping for life insurance. That’s why many people look at different types of policies that are available and will make decisions based on their budget. But it is also important to keep in mind that life can change, and changes can impact your coverage needs.
Many younger adults may start off with a term policy, and as their income grows, or as their family grows, a permanent solution may become more attractive as time passes. A term policy that’s able to convert to a permanent policy can be a great way to let you enjoy cost-effective protection today and give you the option to upgrade in the future.
While most term policies include the option to convert, you may be able to add a rider if it isn’t included in the policy. It can be beneficial to work with a financial professional to understand whether your term policy can be converted, as well as other provisions and features around term conversions.
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