Converting Term Life Insurance to Permanent Coverage - a Smart Move?

Less than 1% of term insurance ever pays a claim! Converting term insurance is still a great idea for many!  A look at the key reasons to convert terms…

Why Converting Term Life Insurance to Permanent Coverage Could Be a Smart Move

Term life insurance is often the go-to choice for individuals seeking affordable coverage for a specific period. Term is inexpensive and serves a very specific purpose: it insures you for a specific term, typically 10, 20 or 30 years.  

Quick-term facts (and questions you need to ask yourself):

99% of term policies never pay a claim; they lapse or end before they are needed. Why? There are many reasons, but the main one is that they are either unavailable at older ages or too expensive if they exist. What are the alternatives?

• Conversion - Many term policies can convert to a permanent policy that will stay in force for the rest of your life.  These conversion options can vary greatly, and a thorough review of the options is an important step.  It’s extremely important to know when and if these options expire. Permanent policies offer many advantages, including living benefits, cash value build-up for retirement, and legacy creation. What are your term conversion options?
• Expiration - Term insurance expires at the end of the contract. You may be able to renew or convert, but that depends on the policy terms. These options frequently expire and change with increased age—i.e. age 60 or 65. Qualifying for a new policy can be a challenge for those with health issues. When does your term insurance expire?
• Renewal - Some term policies have a guaranteed renewal feature. This is important to know, especially if the insured's health profile has changed. Upon renewal, the rates typically increase, so it's important to review the policy options and compare them with new policy opportunities. Do you have a renewal option on your term policy?
  
  

What is permanent coverage, and what does it do for me?

As life circumstances change, the need for long-term financial protection may become more apparent. If you find yourself reconsidering the length and nature of your life insurance coverage, converting your term life insurance policy to a permanent one might be the right step. Here’s why making this switch could be a smart move for you and your family.

Permanent Coverage for Lifelong Protection:

The most significant advantage of converting term insurance to a permanent policy is the guarantee of lifelong coverage. Term insurance provides protection for a set period, usually 10, 20, or 30 years. Once the term ends, so does your coverage. By converting to a permanent policy, such as whole life or universal life insurance, you ensure that your loved ones are protected no matter when you pass away, as long as premiums are paid.

Building Cash Value:

Permanent life insurance policies not only provide death benefits but also accumulate cash value over time. This cash value grows tax-deferred and can be accessed during your lifetime through loans or withdrawals. This feature can be particularly useful if you need funds for emergencies, large purchases, or even retirement. Converting your term policy allows you to build this cash value, creating an additional financial resource for you and your family.

Avoiding Higher Premiums Later

As you age, purchasing a new life insurance policy typically becomes more expensive due to increased health risks. By converting your existing term policy to a permanent one, you can lock in coverage without undergoing a new medical exam or face higher premiums based on your current age or health status. This can be particularly beneficial if you've experienced health changes since you first purchased your term policy.

Estate Planning and Legacy Goals

Permanent life insurance can be critical in estate planning and leaving a legacy for your loved ones. The death benefit from a permanent policy can be used to pay estate taxes, ensuring that your heirs receive the full value of your estate. Additionally, the policy can be structured to create a lasting financial legacy, supporting causes or providing for family members beyond your lifetime. Converting your term policy allows you to integrate life insurance into your long-term financial and legacy planning.

Meeting Changing Financial Needs

As your financial situation evolves, so do your insurance needs. A term policy that was sufficient when you were younger might not offer the same peace of mind as you approach retirement or take on new financial responsibilities, such as caring for aging parents or supporting a dependent child. Converting to permanent insurance can provide the long-term security you need to address these changing needs and ensure ongoing protection.

Flexibility and Policy Customization

Permanent life insurance policies offer various options and riders that can be customized to suit your needs. For example, you might add a long-term care rider to cover potential healthcare costs in the future. Some policies also offer flexible premium payments and the ability to adjust the death benefit amount. By converting your term policy, you gain access to these customizable features, allowing you to tailor your coverage to fit your specific circumstances.

Conclusion

Converting term life insurance to permanent coverage can be wise for those seeking lifelong protection, cash value accumulation, and flexibility in their financial planning. Whether you're looking to ensure long-term security for your family, build cash value, or plan your estate, a permanent life insurance policy can provide the stability and peace of mind you need. As always, consulting with a financial advisor or insurance professional is important to determine if conversion is the right move for your unique situation.