Converting Term Life to Permanent Insurance

Last Updated: April 1, 2019

One of the most common questions our potential clients ask us is, “What should I do when my term life insurance policy expires?”

Most of the people we speak with are shocked to learn about one of the term life insurance industry’s best kept secretsthe ability to convert an existing term life insurance policy into permanent coverage.

Before buying a term life insurance policy, we always recommend comparing the conversion options your policy offers. Having this valuable benefit could prevent you from being uninsured in the future.

In this article, we’ll explain to you everything you need to know about converting your existing term life into permanent insurance coverage. We’ve also provided some sample life insurance quotes by age and gender for “lifetime” coverage to age 90 or later.

Quick Article Guide:

  1. What is a Term Life Conversion and How Does it Work?
  2. Should I Convert My Term Life Policy Into Permanent Insurance?
  3. When Do People Typically Convert Their Coverage?
  4. Review Your Policy’s Conversion Age Limit
  5. Real World Example of a Client We’ve Helped
  6. I’ve Already Missed My Conversion Deadline…What Are My Options?
  7. Purchasing Life Insurance with Level Rates to Age 90 or Later
  8. Term Life Advice is Here to Help

What is a Term Life Conversion and How Does it Work?

Term life insurance is one of the most popular forms of life insurance available, and it is usually the most affordable. It provides a fixed death benefit and level premiums for a set number of years. The number of years that your policy and coverage are guaranteed for is referred to as the “term.”

During the term of your policy, your payments cannot increase and your coverage cannot decrease, regardless of any changes to your health. Term life insurance is usually sold in 5-year increments for 10, 15, 20, 25, or 30 years, and the longer the guaranteed period or “term” is, the more expensive your policy will be.

The downside to term insurance is that when your term ends, your rates and coverage are no longer guaranteed. Most companies will offer to annually renew your policy at an increased rate, but these rapidly increasing rates are usually unaffordable for most people, especially after a few years.

Rather than continuing to pay an increasing rate each year, many people choose to buy a new term policy or a new smaller lifetime policy instead. If you’re still in good health, buying a new and affordable life insurance policy shouldn’t be an issue. However, if your health has declined, it may be impossible to qualify for a new policy that doesn’t break the bank.

To help their client’s avoid this dilemma, many life insurance providers offer convertible term life insurance. If your term policy offers a “conversion” option, you’ll have the ability to exchange your existing term policy for a permanent or lifetime policy before your current term expires.

While companies don’t typically advertise this added benefit, it’s definitely a benefit worth having. When you convert your existing policy, you do not have to reprove your health or insurability because you’re guaranteed to get approved at your original health or risk class. For our clients that can no longer qualify for coverage, this is an invaluable option to have.


Should I Convert My Term Life Policy Into Permanent Insurance?

should i convertWhen you reach the end of your policy’s term, the cost of your policy is no longer guaranteed, and it will continue to increase. Depending on your current age, the length of your initial term, and your rate class, your rates may increase by as much as ten to fifteen TIMES. To make matters worse, these rates will only continue to annually increase exponentially thereafter.

Below we’ve provided the breakdown for a 15-year term policy that we helped a client with last year. This client was 35 years old when he purchased his policy and he was approved at a “Standard” rate class due to his build, sleep apnea, blood pressure, and cholesterol medication.

15-Year Annually Renewable / Convertible Level Term Policy – $250,000

Policy YearPolicyholder’s AgeAnnual Cost
Year 135$235
Year 236$235
Year 337$235
Year 438$235
Year 539$235
Year 640$235
Year 741$235
Year 842$235
Year 943$235
Year 1044$235
Year 1145$235
Year 1246$235
Year 1347$235
Year 1448$235
Year 1549$235
Year 1650$1907.50
Year 1751$2072.50
Year 1852$2262.50
Year 1953$2477.50
Year 2054$2725.00
Year 2559$4367.50
Year 3064$8147.50

*Displayed annual rates are accurate as of 05/04/2018 and are provided for illustrative purposes only.

A 10 or 15-year term may be a great fit for someone who needs to insure the balance of a loan, but a shorter term is not ideal for most people under the age of 40. In this example, the client had no dependents or mortgage that he was responsible for. His reason for the insurance was securing the balance of his student loans for out-of-state tuition and an expensive car that his father had reluctantly co-signed for.

If this client had a young family, or if he was planning on starting a family, we would have recommended securing a policy with a longer term instead. Most people purchase a term that is long enough to provide protection to their loved one’s until all of their major financial obligations have been met.

For mortgage protection, make sure you purchase a term policy that will extend coverage until your mortgage has been paid off. If you’re purchasing life insurance to provide your family with income replacement, make sure your term extends until your planned retirement age. If you have multiple debts and financial obligations, you can also layer or stagger your policies around each life event to save on the cost on your insurance.

Once your major financial obligations have been settled, your need for coverage should decrease. If you find that you still need to carry a large amount of coverage after your initial term expires, we always recommend locking in a new policy. However, if you have serious health issues or if you’ve been diagnosed with a life-threatening illness, converting your existing term policy may be your only option to continue coverage.

Most companies will allow you to convert up to the entire face amount of your existing term policy and you’ll be guaranteed your original rate class. With that being said, it’s important to note that permanent or lifetime insurance is more expensive than term life insurance. For this reason, many people choose to convert a portion of their existing term policy instead of their entire policy.

Converting your $500,000, 30-year term into a $50,000 policy with level rates until age 100 is often more affordable than purchasing a whole life insurance policy, especially if you’ve had an health issues. We’ve also worked with client’s who have decided to convert their entire death into permanent coverage. This is more common when the insured has a terminal illness, and in these situations family member’s can help pay for the policy, but the insured must initiate the conversion process.


When Do People Typically Convert Their Coverage?

For some people, converting their existing term policy into a smaller lifetime policy is a much more affordable than reapplying for a new life insurance policy when they’re older. Usually these policies are set up to cover final expenses, and they can be very affordable if they are locked-in before the age of 65.

After a major life event has passed, some of our clients will decide to convert or decrease their term coverage. The idea behind this is that it saves money, and now this major financial event has passed, their surviving family would need less money is needed to “keep things going.”

Examples of major life events include:

  • Paying off the mortgage
  • Children moving-out and becoming self-sufficient
  • Retiring on a fixed income
  • To reduce estate & inheritance taxes after retirement
  • Divorce at a later age (Some clients want to leave a small amount of money for adult children and burial costs, but nothing for their ex)


Real World Example of A Client We’ve Helped

real world exampleSamantha J., of Albany, New York, purchased a 30-year term life policy about 25 years ago when she bought her first home. Samantha has since paid off her mortgage and no longer needs $500,000 of coverage.

When Samantha called us, she was thinking of cancelling her policy, but she wanted to review her options first. Samantha and her husband had divorced, her children had moved out, and since her mortgage had been paid off, she wanted to leave some coverage behind for her final expenses. Samantha was in pretty good health, but her fairly recent treatment for stage III breast cancer was severely limiting her options.

After reviewing the policies available to her, Samantha chose to convert her term policy into a $50,000 permanent policy. Her cost was slightly lower than her original term policy, which even saved her a few dollars a month. Samantha told us $50,000 would be “enough to put her away and throw a nice party” while not having to worry about leaving a financial burden for her daughters.

Converting Samantha’s term policy prevented her from being forced into buying a “guaranteed issue” life insurance policy with a two-year waiting period. While these policies are better than no coverage at all, in Samantha’s case, the rates would have been almost four times more for half the amount of coverage.


Review Your Policy’s Conversion Age Limit

If your existing term life policy offers a conversion option and you’re considering converting, there are some restrictions that limit when you can convert your policy. In addition, you must convert your term policy into permanent insurance before your term expires.

In reviewing policies from the 30 most popular term life insurance companies, here’s the most common restrictions we’ve found regarding term conversion.

Conversions must happen:

  • Prior to age 65, 66 or 70
  • Within the first 10 years of the policy
  • By age 70 or within first 5 years of the policy, whichever occurs last
  • By age 66, or within first 10 years of the policy, whichever occurs first

As you see, it’s all over the board…

Don’t expect your insurance company to notify you of your pending conversion deadline either, because there’s no benefit to them. If you outlive your term policy and allow it to lapse, they’re off the hook. On the other hand, if you pay the new skyrocketing premiums, they make more money. This is why you won’t be notified because once you switch to permanent coverage, they will be responsible for a future death claim as long as you continue to pay your life insurance premiums.

It’s important to note that you don’t need to wait until your age deadline to execute your conversion. It’s better to review your policy and your conversion options at least once a year, or anytime your need for life insurance changes.

Most people convert their term policies when they no longer have dependents that rely on them for income, or any outstanding debts that could become a financial burden for surviving family members. Like all other forms of life insurance, the cost of permanent life insurance is greatly affected by age. Converting your term policy now instead of at next year, could save you 10-15% in annual premiums over the course of your remaining lifetime.

If you already have a term policy, review it, and evaluate your conversion options. If you can’t figure it out, your insurance company may have an office which specifically handles term to permanent coverage conversions. You can also give us a call at: 855-902-6494 and one of our experts will review your policy, free of charge, or direct you to the right place.

Informed clients who would be otherwise uninsurable based on their current health issues have successfully secured affordable lifetime policies just by knowing their options and taking action.


I’ve Already Missed My Conversion Deadline…What Are My Options?

If you’ve missed your conversion deadline but are still in good health, don’t worry, you probably still have a few affordable options for life insurance.

If you’re 80 or younger, you’re still eligible for term and permanent life insurance options from a handful of A+ rated companies. In fact, some of the policies that we offer even provide guaranteed rates and coverage until age 90, 95, 100, 195, 110, or even 120.

These policies are known as guaranteed universal life insurance, or GULs, and they allow you to lock in $25,000 or more of life insurance until a set age without requiring an investment. GULs are very similar to term insurance because they offer level rates and guaranteed coverage until the age of your choice, usually 90 or later.

These policies do not carry the investment risk attributed to non-guaranteed universal life insurance and they do not build a cash value. Unlike many policies that offer an initial “teaser rate” to lure you in, these policies do not increase in cost as you get older, you pay a level cost from the time your policy begins until age 90, 95, 100, 105, 110, or 120.


Purchasing Life Insurance with Guaranteed Level Rates to Age 90 or Later

The following tables provide the monthly cost of a lifetime policy for a male in “average” health. Not excluded from this rate class could include applicants who are up to 60 pounds overweight, well-controlled diabetics, and cancer survivors who are at least one year past treatment. We included rates for a 60, 65, and 70 year old male in these examples. Rates for a female of the same age with comparable health issues would be approximately 20-30% less.

The rates provided below are from an AM Best “A+” rated company which has been in business more than 100 years and has never failed to pay a valid claim.

Standard Rates for a 60 Year Old Male, $50,000 – To Age 90 or Later

To Age 90To Age 95To Age 100To Age 110To Age 121

*Monthly rates are accurate as of 05/04/2018 and are provided for illustrative purposes only.

Standard Rates for a 65 Year Old Male, $50,000 – To Age 90 or Later

To Age 90To Age 95To Age 100To Age 110To Age 121

*Monthly rates are accurate as of 05/04/2018 and are provided for illustrative purposes only.

Standard Rates for a 70 Year Old Male, $50,000 – To Age 90 or Later

To Age 90To Age 95To Age 100To Age 110To Age 121

*Monthly rates are accurate as of 05/04/2018 and are provided for illustrative purposes only.


Term Life Advice is Here to Help

tla here to helpOur agency works directly with more than 60 top-rated life insurance companies allowing us to match our clients with the most affordable term and permanent life insurance options available.

As a no-cost broker, our shopping services are free and our agency offers more than 50 years of collective experience. By having access to dozens of companies and their unique underwriting guidelines, we’re able to match our clients with the most affordable life insurance options available.

If you are shopping for a new policy, or if have questions about converting your existing life insurance policy, please give us a call toll-free at: 855-902-6494. You can also request a free online quote below to compare rates from dozens of highly-rated insurers in less than a minute.

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