Term Life Insurance Conversion -(Everything You Need to Know)

By Michael Horbal - Updated on 07/06/2023

What is a term life insurance conversion period?

A term life insurance conversion allows you to trade your term policy for a universal or whole life policy.

Most (but not all) term life insurance policies have the option to convert it to permanent coverage with no further medical underwriting.

And while that is an excellent feature of term policies, you need to know the pros and cons of term conversions.

How a Term Life Insurance Conversion Works

A term life insurance conversion is relatively simple because there is no medical underwriting.

Every life insurance conversion needs the following:

  1. Existing Policy Information
  2. Conversion Illustrations
  3. Conversion Application

But don’t worry; we’ll help you put this together even if we weren’t your original insurance agent.

As part of our review, we’ll review your life insurance needs to see if the coverage is adequate.

If you are a non-U.S. citizen life insurance conversion options may be limited.

Existing Policy Information

The first step is to get the following on the existing term life insurance policy.

  1. Policy Number
  2. Policy Date
  3. Conversion Period
  4. Your Original Underwriting Health Class
  5. The Coverage Amount
  6. Ownership and beneficiary information

The conversion period varies by the company, with some privileges lasting the entire term length.

You can change your beneficiary and settlement options, especially if you have gone through a divorce since you first bought coverage.

If you’re younger, you may be able to convert your term policy for 40 years.

If you bought your policy through a niche program like Costco life insurance or from the AICPA, your conversion options are limited.

A conversion may also be used for pension max situations.

Other policies, like accidental death, do not have conversion available.

We use the above information to determine which products are available for conversion.

With the current policy information, we can work on conversion illustrations for you.

Conversion Illustrations

Did you know that there are almost endless possibilities when illustrating a universal life or whole life insurance policy?

It’s true, and it can be challenging to understand the 10-30 page illustrations that insurance companies provide.

You must choose premium payments, death benefits, policy withdrawals, and riders.

That’s where we can be helpful to you.

Once we know your objective with the conversion, we can provide the illustrations that best fit your needs.

We have access to the illustration systems for the best life insurance companies.

Illustration Options

As mentioned, options are endless, but we’ll guide you through the life insurance process.

Premium Payment Choices Include:

  • Pay premiums every year until death
  • Limited years – Pay until age 65 or pay for ten years
  • Specified Premium – Pay “x” amount
  • Skip Years – Paying a premium, skipping a year, resuming payments

Death Benefit Choices Include:

  • Full conversion of the term policy
  • Partial conversion of the term policy
  • Guaranteed Death Benefits
  • Non-Guaranteed Death Benefits
  • Increased Death Benefit (may require underwriting on the increase)
  • Endowment Death Benefit
  • Zero cash at 100 Death Benefit

Policy Withdrawals and Riders:

Suppose you are looking to use your policy to provide supplemental retirement benefits in the future for your family.

In that case, the policy can be designed to provide you with a tax-deferred income using policy loans and withdrawals during retirement.

You can also choose life insurance riders for your conversion policy.

Conversion Application

Once you’ve chosen your option, you sign the related illustration and conversion application to submit to the home office.

The home office takes 10-14 business days to complete the process and issue the new policy.

If you are doing a partial conversion, the home office will address this with a new policy for the conversion and a change letter for the reduced term policy.

In some cases, we can get the conversion done quickly if there is a conversion deadline or premium due soon.

When Should You Consider a Term Life Insurance Conversion?

In our experience, most term life insurance conversions happen when the insured develops a significant health issue or is looking to sell their policy for a life settlement.

The conversion privilege allows you to have lifetime coverage that you won’t outlive.

And because you don’t have to qualify medically with a conversion, it’s a simple process.

That’s especially helpful if you would have ended up with a table rating or flat extra due to a health condition.

Suppose you are selling your policy for a life settlement. In that case, we can help you get the correct illustration as settlement companies have specific guidelines they want to see illustrated.

Pros and Cons of Life Insurance Conversions

Before converting your life insurance policy, consider these pros and cons.

While the life insurance statistics show that most people will not convert their policy, it’s a significant benefit if you need it.

Life Insurance Conversion Pros

  • No medical underwriting required – You won’t get declined!
  • No paramedical exams.
  • Premiums are based on your health rate class when you bought coverage
  • Lifetime coverage is available
  • You may be able to add helpful riders
  • A convertible policy allows you to sell the policy
  • You may be able to convert a portion of your policy

If you or your spouse have life insurance, a term conversion can be beneficial when you become a senior.

For example, if you no longer need your entire one-million-dollar policy, you may be able to convert a portion of your coverage to a final expense policy.

Business owners may also find conversion features attractive. You can use the coverage as collateral for an SBA loan and convert it for key person life insurance.

A conversion privilege is a good idea if you have a risky occupation, such as a police officer, firefighter, or other occupation where you can be injured.

Depending on your individual needs, it may make sense to look at a new policy vs. converting your existing policy.

Life Insurance Conversion Cons

  • Your premium increases substantially for the whole or universal life policy.
  • Premiums are based on your current age.
  • Some companies limit the conversion products available.
  • Conversion choices may decrease with older policies.

We’ll tell you what types of life insurance are available for conversion.

A conversion may not be your best option if your health has improved since you first took out your policy.

Quitting tobacco products is the most common example:

You can request a change in your underwriting rate class from companies, but the process is similar to going through underwriting again.

Sometimes it’s just easier to replace your life insurance policy altogether.

We have several companies that offer no-exam life insurance to make it easy for you.

Underwriting will request a new paramed exam with build measurements and MIB and may request your medical records using a service like Human API.

Final Words

A life insurance conversion can be a great way to keep your life insurance policy.

Contact us to explore your options if you are considering a term life insurance conversion.

We’ll explain each type of available product and show you comparisons so you can make an informed decision.

Thank you for your time. We look forward to hearing from you.

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