Term Life Insurance Conversion

A term conversion rider in life insurance is a feature that allows you to change a term life policy into a permanent life policy without undergoing fresh medical underwriting. Some term life insurance contracts automatically provide a conversion option. Others ask you to pay extra for this life insurance rider, and some policies may not even include it at all. 

Term life insurance provides coverage for only a set period of time, typically between 10 and 30 years. If you outlast the policy’s term, your coverage will lapse. Permanent life policies, such as whole life insurance, frequently provide everlasting coverage, up to a maximum age of 100 or 121. However, these policies are typically far more expensive than term life insurance because, in addition to permanent insurance, they include a savings component known as cash value.

A term conversion rider guarantees the ability to get permanent coverage in the future while allowing you to pay cheaper term life premium rates. You may wish to protect the option of purchasing permanent life insurance in case your health or financial situation changes. Perhaps you can only afford term insurance right now, but you want to make enough money to acquire permanent life insurance later. 

How much does it cost to convert a term policy?

Converting your term policy to a permanent one usually incurs no fees, but your premiums will rise dramatically. Your health status will have no impact on your premiums because a term conversion rider does not require fresh underwriting or a life insurance medical exam. However, your age will affect the amount you pay. 

You may have a limited window to alter your coverage. Some policies, for example, require you to exercise your conversion option before you reach the age of 65, at least 18 months before the policy expires, or within the first five or ten years of the policy’s term. With other policies, the conversion provision is in effect until the policy expires.

Many insurers allow for partial conversions, which result in two independent policies: your existing term policy (with a lesser life insurance face value) and your new permanent policy.

Be aware that when you convert, you may not be able to select all of the permanent policies available from your insurer. You’ll generally just have one conversion option, and it might not be the best insurance for you. It’s a good idea to look into other permanent life insurance solutions on the market, especially if you are in good health.

A term conversion rider can give you more options if you need to obtain permanent coverage in the future. If you’re interested in a policy that has this rider, talk to a life insurance agent or broker.