For many families, term life insurance provides the right combination of protection and affordability. Their term policy expires at just the right time, once they no longer need the coverage. In many cases they have already retired from their job, paid off their home and have fully-grown, self-sufficient children.
But what if, just years after purchasing a term life insurance policy, your circumstances change and you realize you needed permanent life insurance? Most term life insurance policies will allow the insured to convert a term policy to a whole policy without any additional medical exams. In order to take advantage of this option, it must be done within a designated time frame or before reaching a certain age.
Top Reasons for Converting to a Whole Life Policy
With term life insurance, the policy will provide a death benefit only if you die while the policy is in effect. On the other hand, whole life insurance policies are a form of permanent life insurance. Under a whole life policy, the death benefit is paid regardless of when you die. Permanent life insurance policies also have a “cash value” element. You can borrow from this reserve throughout your life. If the loans are not repaid by the time of your death, your death benefit will be reduced by this amount.
In some instances, even if you have already selected a term life policy, you may find that a whole life policy is more appropriate. Here are a few examples:
- Your financial circumstances change. Many financial planners recommend permanent life insurance to their very wealthy clients whose heirs will face estate taxes. Proceeds from the whole life insurance policy can be used to pay the estate taxes. According to the IRS, this will only impact estates with a net worth of $5.4 million or more. Another possible reason for conversion is if you had always preferred a whole life insurance policy, but could initially afford it.
- Changes in health status. There is no denying that young, healthy people will get the best life insurance rates. If you have developed health conditions since purchasing your term life insurance policy and fear that it may not provide adequate coverage, converting to a whole life insurance policy can help you avoid taking another medical exam. Keep in mind that you will likely pay higher premiums after converting to a whole life policy.
- Life happens. Some people may find that whole life insurance is a better choice for them. For example, if you have children with special needs or own a business then whole life insurance may help you ensure that your loved ones are cared for when you pass on. A whole life policy can also be used to ensure that your business partners have ample funds to keep operating without you. Converting to a whole policy locks in your coverage for life.
Whole Life Conversion Policies
Most term life insurance policies today have a conversion clause which will allow you to switch to whole life. Keep in mind that not all term policies have this clause. For this reason, it is imperative that you always read the fine print of the policy before making a purchase.
If you are not able to convert your policy by the designated deadline, you may have to take a medical exam in order to qualify for the new whole life insurance policy. If you are in poor health, this may prevent you from qualifying for the policy you need.
If have a term life policy and have decided that whole life is a better fit for you, please contact your insurance agent or a life insurance company.
Converting just a portion of the face value of your current policy may be a way to reduce some of your expenses.
Taking time to review your life insurance policy each year is an excellent way to ensure that you are adequately covered.