Did you purchase a term policy and are curious about converting it or part of it into a whole life or permanent policy? If your financial obligations have not decreased as you have become older due to debt or perhaps you still have dependents that rely on your income; converting might be a great option for you.
One thing to consider with converting is cost. Converting your policy will dramatically increase your premiums, anywhere from 2-20 times more expensive than term insurance. This is because your coverage has now become permanent and because of that the life insurance company will for sure be paying the death benefit. One of the perks to converting your existing policy is that there is no additional underwriting. If you have a health issue that would disqualify you from obtaining a new policy, a conversion can be an excellent option.
However, if you are still in decent health, it very well could be more cost effective to take out a new term policy. We suggest talking to an independent agent about if converting or purchasing a new term policy is best for you.
Are you able to convert your policy? Most term policies have what is called a Term Conversion Rider, which enables you to convert. If you are unsure if your policy has one, contact the insurance company your current policy is with.
The Term Conversion Rider will specify a specific time period in which you are able to convert your policy. Typically, this starts within the first five years of your policy and usually expires when you reach a certain age (typically 65-70). If you are unsure of your conversion period, it will be stated in your policy, or you can call your insurance provider if you are unable to locate it in your policy.
Some insurance companies may offer partial conversion. This would convert a smaller death benefit into permanent coverage. For example: You have a $1,000,000 term policy that you would like to convert to permanent coverage. The premiums for $1m permanent coverage can be cost prohibitive and you might not need that large of a death benefit anymore. You can opt to convert part of the policy. If you decide to convert $500,000 into permanent coverage, the remaining $500,000 would remain as a term policy until the term expires.
If you have any questions about if converting your current policy or purchasing a new term policy, give us a call and we would be happy to answer any questions you may have.