Convertible Term Life Insurance
Convertible term life insurance allows you to convert a term life policy into a permanent life policy. This can prevent your coverage from lapsing, and you will not need to undergo a new medical exam. If you convert to a permanent life insurance policy, your rates will increase.
- Written by Rachel Christian
Financial Writer and Certified Educator in Personal Finance
Rachel Christian is a writer and researcher for RetireGuide. She covers annuities, Medicare, life insurance and other important retirement topics. Rachel is a member of the Association for Financial Counseling & Planning Education.Read More
- Edited ByMatt Mauney
Matt Mauney is an award-winning journalist, editor, writer and content strategist with more than 15 years of professional experience working for nationally recognized newspapers and digital brands. He has contributed content for ChicagoTribune.com, LATimes.com, The Hill and the American Cancer Society, and he was part of the Orlando Sentinel digital staff that was named a Pulitzer Prize finalist in 2017.Read More
- Financially Reviewed ByEric Estevez
Owner of HLC Insurance Broker, LLC
Eric Estevez is a duly licensed independent insurance broker and a former financial institution auditor with more than a decade of professional experience. He has specialized in federal, state and local compliance for both large and small businesses.Read More
- Published: August 31, 2020
- Updated: January 17, 2023
- 4 min read time
- This page features 7 Cited Research Articles
- Edited By
What Is Convertible Term Life Insurance?
Convertible life insurance allows you to transition your term life policy into a permanent life policy.
Term life insurance lasts a specific period — such as 10, 20 or 30 years — and your beneficiary gets a payout from the insurer if you die within that timeframe. Alternatively, permanent life insurance never expires so long as premiums are paid.
Convertible term life insurance gives you the flexibility to choose if you want your coverage to continue.
You can enjoy affordable term life insurance now and still switch to permanent life insurance in the future without undergoing a new medical exam.
Not all term life policies are convertible, but many are.
If you convert to a permanent policy, know that your life insurance costs will increase significantly in exchange for lifelong converge.
Most policies require you to convert within a certain timeframe, such as within the first 10 years, or by a certain age, such as before age 65.
The deadline for converting and the type of permanent policies available can vary by insurance company.
How Does Convertible Term Insurance Work?
When you purchase a term life insurance policy, the insurer may offer a convertible option in your contract.
This can give you the perks of a permanent life insurance policy down the road, if you need it. However, you are not required to convert, and the conversion does not happen automatically.
If you want to convert, you must typically do so by a certain time. Make sure you know your policy’s conversion deadline. Otherwise, your term life insurance policy will expire, and your coverage will end.
There are several different types of permanent life insurance, but if you convert from a term policy, your options may be limited.
For example, the insurer may only allow you to convert to a whole life permanent policy and not a variable or universal life permanent policy.
Everyone may not benefit from convertible life insurance. However, it is an attractive option for some people.
- You have a child who needs permanent care into adulthood.
- Your spouse is financially dependent on you and always will be.
- You can’t qualify for a new policy because of poor health.
- You want to provide your heirs with money to cover estate taxes after you die.
Advantages of Convertible Term Life Policies
It’s important to understand convertible term life insurance pros and cons before purchasing a policy.
- Lifelong Coverage Option
- Your life circumstances may change over time. Convertible insurance gives you the opportunity to extend your coverage for the rest of your life, which may better suit your needs.
- No Medical Exam
- Insurance companies don’t consider your current health when you convert a term life policy. This can be beneficial if your health has declined and made you ineligible for a new policy.
- Coverage for Lifelong Dependents
- Permanent life insurance can be beneficial if you have lifelong financial dependents, such as a child with special needs or a disabled spouse. The death benefit can be used to cover that person’s living expenses after you die.
- Builds Cash Value
- Permanent life insurance features a growing cash value account you can borrow against or withdraw from over time. In contrast, term life insurance has no cash value.
Convertible Term Life Insurance Costs
Some term life policies include a conversion option for free. Others may charge for this feature.
If you choose to convert your coverage in the future, your rates will increase.
Your new premiums will be based on current permanent life insurance market rates, which can cost six to 15 times more than term life insurance premiums.
However, conversion may still be cheaper than applying for a new permanent policy after your term ends, especially if your health is poor.
Some life insurance companies offer term conversion credits, which may temporarily lower your new premium costs.
A partial conversion is another way to reduce cost. This option lets you split the death benefit between your existing policy and the newly converted permanent policy.
For example, imagine you choose to convert half of your $500,000 term life policy. In this case, $250,000 would be converted to permanent life insurance and the other $250,000 would remain on your current term life policy until it expires.
This can make your rates more affordable compared to paying premiums on a $500,000 permanent life policy.
7 Cited Research Articles
- Chorpenning, A. (2020, July 30). Permanent Life Insurance: Definition and Pros & Cons. Retrieved from https://finance.yahoo.com/news/permanent-life-insurance-definition-pros-210301902.html
- Chorpenning, A. (2020, May 4). How Does Life Insurance Work? Retrieved from https://www.forbes.com/advisor/life-insurance/how-it-works/
- Kinney, J. (2020, January 17). What Is Term Life Insurance? Retrieved from https://www.usnews.com/insurance/life-insurance/term-life-insurance
- Danise, A. (2019, December 23). Choose the Right Term Life Insurance. Retrieved from https://www.forbes.com/advisor/life-insurance/choosing-the-right-term-life-insurance/
- American Council on Life Insurance. (2018). What You Should Know About Buying Life Insurance. Retrieved from https://www.acli.com/-/media/ACLI/Files/Consumer-Brochures-Public/What_You_Should_Know_About_Buying_Life_Insurance.ashx?la=en
- American Council on Life Insurance. (n.d.). Types of Life Insurance. Retrieved from https://www.acli.com/Consumer-Info/Life-Insurance/Types-of-Life-Insurance
- Life Happens. (n.d.). Term Insurance. Retrieved from https://lifehappens.org/life-insurance-101/term-insurance/
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