Learn about when you should consider converting your term policy to whole life, for maximum coverage.
When weighing the pros and cons of different types of life insurance, people are often drawn to term policies because they're easy to buy. Plus, they generally offer a death benefit that provides solid financial protection. On the con side, term policies are temporary. After the term is over, a lot of people feel frustrated that they don't have much to show for all those years of paying premiums. Permanent insurance — also called whole life or universal insurance — is appealing because it builds cash value in addition to providing coverage. Unfortunately, the price of permanent insurance is higher than term insurance. A life insurance conversion lets you change all or a portion of your term life insurance policy into a permanent life insurance policy. It's helpful because many companies allow you to convert your term policy into permanent coverage without having to undergo a medical exam. Check your policy documents or contact your insurance company to see if there are limits to how much can be converted without a medical exam.
A conversion option, or conversion privilege, is common in the life insurance industry. The conversion process is usually simple: Policyholders place a request with their life insurance company to convert a portion of their term life insurance policy into a permanent life insurance policy. In doing so they can skip the underwriting process and typically have coverage within a few days. Because most conversion options have an expiration, it's important to check the date carefully because it doesn't always coincide with the end date of the guaranteed term period or the end of the contract. It can sometimes expire years before your coverage is set to change. Depending on your provider, you have options regarding the type of permanent insurance you convert to. The most common preference is converting term to whole life.
Not necessarily. While many people assume all term insurance is convertible to permanent insurance, it depends on the insurance company. Some guaranteed issue term policies may not be convertible, for example, and if they are, it may be at a standard health rating.
If you have private life insurance, keep in mind that conversion privileges have expiration dates.
When it comes to employer-offered life insurance, or group life insurance, the option to convert isn't as common. It's usually referred to as a portability option and switching from group to private insurance often requires underwriting.
The Department of Veterans Affairs offers Servicemembers Group Life Insurance (SGLI) and Veterans Group Life Insurance (VGLI) term benefits to servicemembers and veterans. They also offer a conversion option to move into a commercial policy.
If servicemembers are covered under the SGLI program, they can choose to convert their coverage to an individual commercial policy within a 120-day window after separating from the military. The conversion policy has to be a permanent policy, but they can take advantage of standard premium rates without having to provide proof of good health.
VGLI policyholders can convert their coverage to an individual permanent policy anytime.
Learn more about SGLI and VGLI conversion on the VA website's life insurance page (Opens in New Window) . See note 1
If you're ready to convert your term life insurance policy into a whole life insurance policy, first contact your life insurance company and request the conversion. Your company will then provide you with the necessary forms and information to complete the conversion process.
There are pros and cons of converting. Although it's a simple process, keep in mind the following considerations:
As part of your research, consider our advice on 4 questions to ask when buying life insurance.
A licensed life insurance agent can help determine if permanent life insurance meets your needs.