How Does Convertible Term Life Insurance Work?
Convertible term life insurance is a typical term life policy with a “conversion rider” that allows you to convert the policy to permanent coverage. When you convert, no evidence of insurability is required, which means you don’t have to answer health questions or take a medical exam. Regardless of any health conditions you may have, the conversion cannot be denied.
In most cases, the policy will be converted to whole life insurance, but some insurers will allow you to choose to convert to universal life as well.
Nearly all term life insurance policies sold today automatically include a conversion rider at no additional cost. There will be what’s called a “conversion window,” which varies by company. It’s the period of time you’re able to convert. In most cases, the conversion window is 50% of the term length.
For example, if you have a 20-year term, you would have the option to convert through the first ten years. On the flip side, some companies allow you to convert until the very end of the term. For example, AARP term life policies allow policyholders to convert up to the day before the policy expires.
It’s term life insurance, so you choose how long the policy lasts, which is typically 10-30 years. If you don’t convert the policy, it will eventually expire, and you will no longer be insured. However, if you die while the policy is active, the insurer will pay out the death benefit (a tax-free cash payment) to your beneficiaries, which they can spend without any restrictions.
How Much Does Convertible Term Life Insurance Cost?
Below are sample convertible term life insurance prices for a 20-year term, ranging from $50,000 up to $2 million in coverage.
What Happens After You Convert?
If you opt to convert, you will no longer have your original term life insurance coverage. Instead, you’ll have whole life coverage, which is a type of life insurance that lasts forever, has a fixed rate, and builds cash value. The premium you will be paying now will be significantly higher than what you were paying previously. There are two reasons why the price jumps so much:
- One of the primary differences between term life and whole life is the cost. Whole life insurance can cost 5-20 times as much as term life insurance. For example, a 40-year-old female will pay approximately $38 per month for a $500,000 30-year term life policy. She would pay roughly $601 monthly for a $500,000 whole life policy.
- The price is now being calculated at your current age. When you bought the term policy, you were younger. Since age is a major life insurance cost factor, now that you’re older, it heavily contributes to the higher rate.
To illustrate this, let’s say a 50-year-old male bought a 30-year, $250,000 term life policy when he was 30. His rate would be roughly $11 monthly (assuming he was in good health and didn’t use tobacco). Now that he is older and converting to whole life insurance, this $250,000 policy will now cost $469 per month.
Why Convert From Term To Permanent Coverage?
There are many reasons to convert your term policy to whole life, including:
- You’ve developed high-risk medical conditions, rendering you unable to qualify for a new term life policy. In this case, converting to whole life is the only real way to continue having life insurance.
- You now have permanent needs warranting permanent coverage. This could include the need to pay final expenses or estate planning costs, or to provide adult dependents with the payout money to continue their lifestyle.
- Want to leave a legacy for your heirs.
- You want cash value accumulation for tax-deferred growth. The cash value can be withdrawn at any time, which is helpful if you ever need access to funds in an emergency.
To convert, you simply need to call the insurance company and request this change. Most of them will have you sign paperwork to execute this change.
Frequently Asked Questions
Virtually every term life insurance policy automatically includes a conversion rider, and the insurer will never charge you extra for it.
Convertible term life insurance gives you the guaranteed right to change to permanent coverage without having to endure any qualification. Renewable term life insurance allows you to renew the coverage, at a much higher price, after the initial term policy expires. Some term life policies are actually both convertible and renewable.
You must exercise the option to convert to permanent coverage before the term policy expires. If you let it expire, the policy will terminate, and there is nothing you can do to reactivate it or change it over to whole life insurance.
Nearly every insurer that sells level life term insurance will include the right to convert to permanent coverage.
- Nationally licensed life insurance agent with over 16 years of experience.
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Anthony Martin is a nationally licensed insurance expert with over 16 years of experience and has personally served over 10,000 clients with their life insurance needs. He frequently authors entrepreneurial and life insurance content for Forbes, Inc.com, Newsweek, Kiplinger, and Entreprenuer.com. Anthony has been consulted as an expert life insurance source for dozens of high-profile websites such as Forbes, Bankrate, Reuters, Fox Business, CNBC, Investopedia, Insurance.com, Yahoo Finance, and many more.
- Nationally licensed life insurance agent with over 20 years of experience
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Jeff Root is a nationally licensed life insurance expert with over 20 years of experience. He has personally helped over 3000 clients with their life insurance needs. Jeff is a best-selling Amazon author and the managing partner of a highly successful insurance brokerage that manages over 2,500 licensed insurance agents across the USA. He has been a featured life insurance source for prestigious websites such as Forbes, Bloomberg, MarketWatch, Nerdwallet, and many more.
- Nationally licensed life insurance agent with over 15 years of experience
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David Duford is a nationally licensed insurance expert with over 15 years of experience. He has personally helped more than 15,000 clients buy life insurance. David has been featured as an expert source for highly authoritative publications such as A.M. Best and Insurancenewsnet. He also runs one of the largest Youtube channels to help aspiring insurance agents serve their clients better.
- Nationally licensed life insurance agent with over 20 years of experience
- Best selling Amazon author.
Jeff Root is a nationally licensed life insurance expert with over 20 years of experience. He has personally helped over 3000 clients with their life insurance needs. Jeff is a best-selling Amazon author and the managing partner of a highly successful insurance brokerage that manages over 2,500 licensed insurance agents across the USA. He has been a featured life insurance source for prestigious websites such as Forbes, Bloomberg, MarketWatch, Nerdwallet, and many more.
- Nationally licensed life insurance agent with over 15 years of experience
- Best selling Amazon author of five insurance sales books.
David Duford is a nationally licensed insurance expert with over 15 years of experience. He has personally helped more than 15,000 clients buy life insurance. David has been featured as an expert source for highly authoritative publications such as A.M. Best and Insurancenewsnet. He also runs one of the largest Youtube channels to help aspiring insurance agents serve their clients better.
