Converting term to whole life insurance

April 21, 2023

Find out what you need to know about switching from term to whole life insurance.

Couple discussing converting term to whole life insurance with agent

If you've looked at life insurance before, you've probably heard of term and whole life policies. But as you research, you may have also heard about the process of converting term to whole life insurance. So, what does conversion mean, exactly? What's involved and why might someone choose to convert their term policy? 

Today, we'll briefly review term and whole life policies so that we can better understand their various benefits and why converting might just be beneficial for you. Read on!

Term vs. permanent or whole life insurance

If you are shopping for life insurance, you'll quickly find there are two primary types of coverage: term and whole life insurance (which is a type of permanent life insurance). Let's briefly review each before discussing conversions.

Whole life insurance

Whole life insurance policies (which fall under the permanent life insurance category) are a type of life insurance coverage that provide lifelong protection; as long as the monthly premiums are paid, it covers you for your whole life. Some insureds shopping for coverage may find that whole life coverage carries a higher premium, although the benefits associated with whole life coverage often justify the additional cost. The younger and healthier you are, the less expensive whole life insurance is, and it includes a cash value benefit you can borrow against.

Some of the benefits of whole life coverage include lifetime coverage, increasing death benefit options, and cash value accumulation. Some carriers also offer long term care options with permanent coverages and all whole life coverage is available to pay final expenses, such as funeral costs.

Term life insurance

Term life insurance policies are one of the most common options for protecting your dependents through their most vulnerable years.

Term life insurance is temporary insurance that can span a specific number of years, typically 10, 20, or 30. When term insurance reaches the end of the term period, coverage will cease or could renew for a higher amount of premium. While term is appropriate for some needs and stages of life, term insurance can be limiting in the long term.

As the name suggests, term policies provide life insurance protection during the time period that the term is in force. Therefore, if a death occurs while a term policy is in force, the death benefit would be paid to the assigned beneficiary. Term offers affordable premiums which is attractive to individuals who are starting or raising families.

However, term coverages are just that - limited to a certain "term" or period of coverage outlined by the policy. While these types of policies can be an affordable and effective solution, they can be limiting when planning for one's entire life. 

So, while a term policy can be a great option earlier in life, as an individual ages and as life changes occur, the need for life insurance changes as well. That's why for many, extending life insurance coverage beyond a term to last a person's whole life becomes more crucial as life progress. This is where a term life conversion can come in handy!

What does convert mean?

Now that we've outlined the purpose and benefits behind term and whole life policies respectively, you can probably guess what converting means! In simple terms, it's the process of switching from a term life policy to a permanent, whole life policy. 

Perhaps you had a term life insurance plan that fit your needs for a number of years, but converting to whole life coverage can help fill coverage gaps in a seamless transition, ensuring that you are properly covered for life beyond the initial term. 

Many term life policies have the option to convert built into them. Conversion eligibility is outlined in policy documentation, so it's always a good idea to review your coverage options if you currently have a term policy. If you're looking into purchasing a new term policy and are curious about the possibility of a future conversion, make sure to discuss this with your agent as well.

Why you should convert term life to whole life insurance

So we have a better understanding of what it means to convert a term policy to a whole life policy, but why is that an option you should consider? 

Your individual needs may vary, but generally speaking the reason insureds decide to convert is that they simply have a need for life insurance even after the 10, 20, or 30-year period a term life policy covers. 

Let's take a look at a few reasons someone might consider a term conversion:
  • You become a caregiver for a family member (young or old) who can no longer live independently, and you want to provide security for them.
  • You have outstanding debt when your term policy ends. Whole life insurance provides more coverage that can free loved ones from financial obligations after you pass.
  • You are diagnosed with health issues since your initial underwriting process. Unfortunately, health issues can disqualify you from certain insurance policies. Converting to a whole life plan allows you to bypass the underwriting and medical examination process because companies will use the information you have on hand.
  • You can now afford it. Many people buy term life insurance because it’s more affordable than whole life insurance at the time they’re buying it. However, you may now have the funds to invest in a higher premium on a whole life policy.
  • You want to build savings with the cash value of a whole life insurance policy. Unlike term life policies, whole life policy premiums go partly to the cost of insurance and partly to building a cash value asset. This cash can be accessed during retirement tax-free. While it’s no 401(k), it’s an excellent asset to have in your financial plan.
  • You want to leave an inheritance for your family without struggling to pull together cash during retirement.
  • You want to make sure your final expenses are covered. Whole life insurance policies can cover final expenses, such as funeral costs.
  • Life insurance benefits are tax deferred, which means, beneficiaries never have to pay taxes on the money received from a life insurance pay out.

How to convert term life to whole life insurance

If you’ve decided to convert from term life to whole life insurance, you’ll be happy to hear that it’s much simpler than applying for a new policy.

First, check the language of your policy to see if you have convertible term life insurance. A conversion provision or term conversion rider is often written as an option in the policy. Life insurance riders are optional add-on insurance products offered by some life insurance companies to customize your coverage.

If you aren't able to locate your policy or have questions about your coverage options, make sure to contact your insurance agent or insurance provider to discuss. If you are just shopping for new life insurance coverage, if so, ask your advisor about term conversions options before you lock in a policy, that way your future options are clear and concise.

Once you are ready to convert a term policy, check to see if your policy has a deadline or specific provisions regarding conversions. Some carriers allow for conversions only up to certain ages and others offer conversion eligibility until a certain policy year. For example, some companies may have 20-year policies, but you’re only able to convert within the first 10 years.

Then, you’ll want to contact your insurance agent to discuss the process of converting your policy. Even if your health conditions have changed, converting to whole life insurance doesn’t require a life insurance medical exam or underwriting process. You’ll be asked to fill out a questionnaire instead, and your new whole life policy should be ready within days.

Alternatives to converting from term life to whole life insurance

So what if you're nearing the end of your term policy and you'd like to explore options outside of converting fully to whole life? Fortunately, there are a few other options at your disposal - let's take a look!

Partial term conversions

If fully converting from term to whole life doesn't suit your needs, you can check your insurance policy to see if you're able to partially convert. Partial conversions allow for the best of both term and whole life coverages; by converting a portion of your term life policy to whole, you're able to have some of the benefits go to your beneficiaries while the rest ends according to the original policy's expiration date. Partial conversions are also guaranteed so no additional underwriting is required.

Purchase an additional term policy

Depending on your needs, term coverage may still be appropriate even if your existing term is set to expire soon. If that is the case, taking out an additional term policy instead of converting to whole life may be the option you're looking for.  

If getting another term life policy is a better option for you, it's important to make sure you have the life insurance coverage you need for this next stage of your life. Find out if your policy has insurance riders that add on custom benefits or if you need a separate policy like final expense insurance to make sure funeral costs are covered for your family when you pass. Burial insurance policies that pay for end-of-life expenses tend to be the most affordable.

How much does converting term life to whole life insurance cost?

When converting term to whole life, there are no fees associated with the conversion itself. However, you (or the insured) would be responsible for assuming the premium for the whole life coverage after the conversion. 

As a reminder, whole life coverage can be more expensive, but many find whole life policies to be beneficial from an investment standpoint as they do include an investment component. 

Term to whole life conversions have the added benefit of not requiring any additional underwriting or medical examinations to qualify, so any health issues that may have arisen since your original application won't affect your new policy. That said, your age may still increase the premium; the older you are, the higher the premium. 

Furthermore, the value of your term policy and whether you choose to convert your entire term policy or just a portion will also impact your premium. Converting a part of your term policy will give you fewer benefits but also a lower whole life premium. Your term life premium will also drop when the policy's value decreases.

To save some money, you’ll want to check with your life insurance company to see if they have incentives for switching to a permanent policy. Some companies give term life policyholders credit based on the amount they paid toward their current policy. Those credits can be used when paying for a permanent policy.

How to find a whole life insurance plan

When trying to find a new permanent policy or whole life policy, consider using the following checklist to decide if the plan is right for you.

1. What is your greater goal?

Do you want to build your savings or leave an inheritance for your family? Knowing what you want will help you and your life insurance agent determine the right amount of coverage.

2. What’s your budget?

You may be in a better place financially to pay for a new whole life policy. However, you’ll still want to work with your financial professional or insurance agent to find the best type of life insurance for your budget - whatever it may be. 

3. Does your insurance company allow you to convert?

Check if your current insurance company allows you to convert to permanent life insurance policies in their portfolio. While some companies may, others have restrictions, such as only being able to convert to a universal life policy.

4. Do you want coverage for long-term care or a rising death benefit?

Whole life coverages come in several shapes and sizes. It is best to speak with a knowledgeable insurance advisor to determine the appropriate amount of coverage that best fits your need.

If you do wish to apply for more coverage than is available under the conversion privilege, there could be underwriting involved. In such a case, however, your agent would make you aware and advise you. 

Knowing your life insurance conversion options is key to having peace of mind as you prepare your family for the future. Whether you choose to switch from a term life insurance policy to a permanent policy or not, make sure the policy you choose works for you.

A couple walking down a beach at sunrise

Whether you're looking for term or whole life insurance, a policy from Germania Life offers peace of mind you can trust. Request a free quote online for more information or contact Germania Life at 1-800-392-2202 ext. 2060,

by Geoff Ullrich

About the Author

Geoff Ullrich is a writer and Content Marketing Strategist at Germania Insurance.

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