Term-to-Permanent Life Insurance Conversion | The Ascent


Ask anyone approaching middle age if they wished they’d purchased a life insurance policy that could be converted to a permanent policy. Their reaction is likely to be a sounding “Yes.” That’s because term life insurance serves one purpose and permanent serves another. Here, we’ll explain each type of life insurance, when term life makes the most sense, and when it’s time to look into permanent life insurance coverage.

What is term life insurance?

As the name implies, term life insurance is in effect for a specific period of time. With a term life insurance policy, a person decides how long they would like to be covered and for how much. Insurers typically require a medical examination to make sure the applicant is healthy enough to take out a new policy and coverage begins.

Because there are no bells, whistles, or perks that accompany a term policy, it is the least expensive way to buy life insurance.

Types of term life insurance policies

According to the Insurance Information Institute, there are two varieties of term life insurance: Level term and decreasing term. With level term, the death benefit remains the same, no matter how long a person has had the policy. With decreasing term, the death benefit decreases over time, often every year. While it was once more common, it’s relatively rare for someone to purchase decreasing term life insurance these days.

There are also renewable and “return of premium” policies.

Renewable policies

At one time, renewable term policies were a big thing. With a renewable term policy, a person could keep renewing their life insurance policy up to a specific age, even if they were seriously ill or otherwise difficult to insure. Renewable policies are far more unusual now.

Return of premium policies

Typically, once a term policy expires you have nothing to show for it. With a return of premium policy, you get a refund of some kind (the size of the refund depends on the specific policy). However, you pay for this refund through higher policy premiums over the years.

Common terms

Here are the typical terms associated with level term insurance:

  • Yearly (or annually) renewable term
  • 5-year renewable term
  • 10-year term
  • 15-year term
  • 20-year term
  • 25-year term
  • 30-year term
  • Term to a specified age (usually 65)

What happens when term life insurance expires?

Let’s say a person has a 30-year term policy. They make payments on the policy for the entire 30 years but once that time is up, so is their coverage.

What is permanent life insurance?

Permanent life insurance lasts a person’s entire life, as long as they stay current with their premiums. While it’s almost impossible to get a new term life policy once a person passes the age of 80, they can remain insured with a permanent policy until they die.

Types of permanent life insurance policies

There are five primary types of permanent life insurance:

  1. Wholelife: As the most popular type of permanent policy, part of each premium goes into building cash value while the insured is alive. Cash value is guaranteed at a rate set by the insurer.
  2. Universal life: Provides more flexibility than whole life because it allows the insured to make changes to their premium and death benefit. Like whole life, universal life accrues cash. While there is a guaranteed minimum cash value, it is based on how well the insurance company’s portfolio performs.
  3. Variable life: Also offers a cash value that can grow, although growth is tied to a selection of investment funds offered by the insurance company and is not guaranteed.
  4. Variable universal life: Marries features of universal and variable life policies. Cash value is not guaranteed and is tied to assets chosen by the policyholder.
  5. Indexed universal: Offers a cash value that changes based on a specific investment index, chosen by the policyholder from a selection offered by the insurance company.

Does permanent life insurance expire?

As long as premiums are paid, permanent life insurance never expires.

Why would you convert term life insurance to permanent life insurance?

When a policyholder opts for a term-to-perm life insurance conversion, they are able to extend their life insurance. For example, if they had a 10, 15, 20, or 30-year term life policy, they can exchange it for a permanent policy rather than allowing it to expire. Here are a few other reasons a policyholder may request life insurance conversion:

Change of financial circumstances

When a young adult purchases their first life insurance policy, it’s common to opt for term life insurance due to the lower cost and how easy it is to understand how term life works. As a person gets older and their career begins to take off, they may have enough money to consider a different type of life insurance.

Potential medical issues

Let’s say someone purchases a term life policy at the age of 22. A few years later, their grandparent dies of a specific medical condition, and shortly after, a parent is diagnosed with the same condition that killed their grandparent. It would be natural for that person to worry that they may also inherit the medical condition. They’re healthy today, but are concerned about what would happen if they became sick and no longer qualified for life insurance. Either purchasing a permanent life insurance policy or converting their current term life to permanent life offers peace of mind.

Concern for a loved one

Life throws all kinds of curveballs and a person who once had a term life policy may suddenly realize that they need a policy that is guaranteed to last their entire life. For example, a person buys a large enough term policy to care for their spouse and children in the event of their death. As their children grow up, it becomes clear that one may never have the skills to live without assistance. Switching to a permanent life insurance policy means knowing that the child will be cared for, even after the parents are gone.

What happens when you convert term life insurance to permanent?

Three things happen when a person converts term life insurance to permanent:

  • Their monthly premium goes up.
  • Part of each premium goes toward building cash value.
  • The policy no longer has an expiration date.

Can term life insurance be converted to an annuity?

By design, term life insurance policies build no cash value, so no, you cannot convert a term life policy into an annuity.

How do you convert from term to permanent life insurance?

If a policyholder with a term life policy wants to convert it to permanent life, these are the steps to take:

Check if a term-to-perm conversion is an option

The original term life policy contains language stating whether the policy is eligible for conversion to a permanent policy.

Check the term conversion period

Some policies are referred to as “conversion period life insurance.” Such a policy allows the policyholder to convert during a specific period. For example, with a 30-year term policy, the conversion period may be confined to the first 15 years that policy is in force. Occasionally, there’s a term policy that allows the policyholder to convert at any point.

Contact your insurance agent or company

If a policyholder is an element of the language used in their policy or confused about how the process works, their best bet is to reach out to their insurance company or agent.

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