Convertible Term Life Insurance
Jessica Fox 23-03-2022

What Is Convertible Term Life Insurance?

Convertible Term Life Insurance

One of the main draws of purchasing term life insurance is that not only is it affordable, but you can also choose the term that suits your needs. What sets permanent or whole life insurance apart from term life is that permanent coverage lasts your entire lifetime. 

It may seem like you need to choose between term or permanent life insurance, but many term life policies have a built-in rider that allows you to convert your term life insurance into whole life coverage at any time.

So, if your life insurance needs ever change, you can swap your term life policy for a permanent one whenever you want!

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Term vs. Permanent Life Insurance

When purchasing life insurance, your two main options are term life or whole life coverage. Determining which is better for you depends on your needs; this chart can help show you how these insurance products line up.

Insurance Product Life Insurance Feature
Cost Is There a Cash Value? Requires Health Exam Guaranteed Death Benefit Can You Withdraw From the Cash Value? Do Premiums Increase Overtime?
Term Life Low No Often Yes No cash value Rates increase each renewal (due to age)
Permanent Life High Yes Yes, except when converting from term Yes Yes No

Convertible Life Insurance Pros and Cons

Pros

There are many reasons why term life policies are a good option for your life insurance needs. Not only are they more affordable, but most have a built-in rider allowing you to port your insurance to permanent. 

So, what are the benefits of convertible term life insurance policies?

  • Convert to Permanent Anytime: Most policies allow you to switch to permanent life insurance whenever you want, but be sure to check for your insurer to see if they have stipulations beforehand.
  • Avoid Another Medical Exam: You can’t change the fact that every year you grow older and with every passing year, there is the possibility of developing a medical condition. As with permanent life insurance, your life insurance rates depend on your age and overall health. But, there is a loophole to circumvent this. Buying a convertible term life policy and switching to permanent coverage means you can bypass a medical exam!
  • Credits: Some insurers offer conversion credits towards your permanent life insurance.
  • You Can Have Both Term and Permanent Life Insurance: It is possible to hold both a term and permanent life insurance policy; often, people buy term policies as added protection.
  • Affordable: Perhaps one of the biggest things going for convertible term life insurance is how affordable it is. Affordable plans can be the difference between someone having life insurance or none at all.
  • Added Protection: If you have a young family, you can double up your life insurance by purchasing whole life and term life coverage.
  • Flexible Coverage: Term life coverage is a fantastic option to save money on premiums while getting the same level of protection you’d expect from permanent coverage. If you have a young family, it’s common that policyholders purchase a term that covers the children into young adulthood. Should anything happen to you, your family still receives the death benefit as they would with whole life insurance policies.

Cons

There are a few disadvantages to term life insurance that you should consider before taking out a policy.

  • Cash Value: One of the features of permanent life insurance is building cash value. However, this is not the case for term life insurance as it has no cash value component.
  • The Policy Expires: Most term life policies expire before the policyholder passes away. The downside is that if you don’t renew, then you are left with no death benefit or policy.
  • Renewal Cost: Every time you renew your term life policy, you’re a little older, which means your premiums will increase. Term life insurance premiums will fluctuate as they aren’t fixed.

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Can You Convert Some of Your Term Policy or All of It?

Interestingly, when converting your term life insurance to permanent insurance, you don’t have to port your entire lump sum. Instead, you can opt to move some funds if you want to keep your term life policy open. 

The option of partially converting some of your term policy to permanent life insurance is excellent for policyholders who want the security of permanent life insurance with the added protection of term life.

Does Term Life Insurance Expire?

Because term life insurance is not permanent, by nature, it will expire. Thus, come the end of your policy, if you have purchased a renewable term life insurance product, you have the option of extending your coverage. However, insurers set term life insurance premiums based on the age you purchased the plan, so your rates will increase with every passing year. 

Also, insurance companies may not offer term life insurance to persons over the age of 90 — this number varies across insurers, so check with your broker.

Should You Get Convertible Term Life Insurance?

As with any insurance product, choosing the right coverage to match your needs is most important. The right match for you could be whole life protection with permanent life insurance or the more affordable and flexible coverage associated with convertible term life. Convertible term life insurance can be a great option for many, so before you take out a policy, be sure to look into all your life insurance options!

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Jessica FoxJessica Fox has been a freelance writer for five years, with a specialty in health, wellness, and insurance. During this time, she’s written for some of the biggest B2B and B2C brands from around the world. Jessica is also the mother of two young daughters and loves coffee, writing, and working out.