Can you convert term life insurance to whole life insurance? (2024)

FAQs

Can you convert term life insurance to whole life insurance? ›

With most insurers, you can typically convert without taking another medical exam or answering health questions, as long as you do so within a certain time frame or by a certain age, such as 75. The deadline for converting and the type of permanent policies available depend on the life insurance company.

The short answer is, it depends. Some term life insurance policies are convertible, while others aren't. If your term life policy includes a term conversion rider, then you'll have the option to convert some or all of your term life policy to a whole one, such as a whole life insurance policy.

Within the first five years, you can switch their covert to the highly popular Advantage Choice, which guarantees coverage for a lifetime. However, your conversion options are limited to two expensive permanent policies five years after the original policy start date.

Term life is designed to cover you for a specified period (say 10, 15 or 20 years) and then end. Because the number of years it covers are limited, it generally costs less than whole life policies. But term life policies typically don't build cash value. So, you can't cash out term life insurance.

A convertible life insurance policy allows you to obtain less expensive term coverage today with the option to convert it to a permanent policy at a later date with the same death benefit. 1 This can be a valuable alternative if your insurance needs, financial resources, or medical situation change in the future.

If your health has worsened and you need coverage for a longer period of time, a conversion may be your best (or only) option. You likely won't have to redo your medical exam. In most cases, your new policy will be priced in the same risk class that your term contract was.

If you only need life insurance for a relatively short period of time (such as only when you have minor children to raise), term life may be better because the premiums are more affordable. If you need permanent coverage that lasts your entire life, whole life is likely preferred.

Generally, you can cash out life insurance if you have a policy that has accumulated cash value. This can be a permanent life insurance policy or a convertible term life policy. But the idea is the same: There has to be some cash value in the policy for you to be able to withdraw it.

A conversion clause is a section of a life insurance contract that allows policyholders to convert their term life insurance policy to a permanent form of life insurance. Conversion clauses may allow a policyholder to maintain coverage without presenting new evidence of their insurability.

If keeping temporary coverage in force at a low cost is the best option, porting would be the way to go. If locking in long-term coverage at a higher rate sounds better, converting would be the better option. With either option, the insured can keep their coverage without a lapse.

Do you get your money back at the end of a term life insurance? ›

Term life is typically less expensive than a permanent whole life policy – but unlike permanent life insurance, term policies have no cash value, no payout after the term expires, and no value other than a death benefit.

Life insurance loans are only available on permanent life insurance policies — such as whole life and universal life — that have a cash value component. You likely can't borrow against a term life insurance policy since it probably doesn't have cash value. Learn more about term vs. whole life insurance.

A whole life insurance policy will begin building cash value as soon as you pay your first premium, and it will continue building throughout the life of the policy as long as there are funds in the account.

The Cost of Converting

There are no fees to convert a term policy to a permanent policy, Spealman says. However, the rate you pay for coverage—your premium—will increase.

Term Life insurance Cons: If you outlive the term length, your coverage will end and you won't receive any benefits. You will not be covered your entire lifetime and your policy will not accumulate cash value like an investment account does.

In most cases, there are no fees or penalties for canceling a term life policy. Also, any premiums you have paid will be fully refunded if you cancel anytime during the free look grace period, which lasts anywhere from 10 to 30 days when the policy is first issued.

Generally, when term life insurance expires, the policy simply expires, and no action needs to be taken by the policyholder. A notice is sent by the insurance carrier that the policy is no longer in effect, the policyholder stops paying the premiums, and there is no longer any potential death benefit.

Using what is called a 1035 exchange, it is possible to convert the cash value of a life insurance policy to an annuity, without having to pay taxes. However, there are a lot of factors and potential expenses to consider, so it's best to speak with an agent or other financial professional before taking any action.

You typically can't borrow from term life insurance policies. You typically can't borrow more than 90% of your policy's current cash value. You typically must pay interest when paying back the loan.