Asked by Meredith L  |  Submitted December 09, 2015

I have a term-life insurance policy but I'm thinking about converting it to a whole life policy because my goals have changed. Is there a big cost difference? Will there be penalties?

I'm thinking more in long-term now because I need to make sure my disabled son is provided for. Is there a big cost difference? Will there be penalties? I don't want to be without coverage and I don't want to go through the whole "interim" process should anything happen.

Report Question Report

  Leave Answer

Sign in to MoneyTips
By submitting you agree to our Terms of Service

  Answers  |  2

December 11, 2015

*Short version:
There could be a big cost difference. No, there are usually not penalties. No "interim" process.

Here is the extended version:
Converting means staying with the same carrier but having your term coverage become a permanent plan with the same carrier. Why might there be a big cost difference? Let's say that you have a 1 million dollar policy coming to the end of its 30 year term. You are 30 years older and the 1 million face amount is large. You can see how the price is going to be huge because permanent coverage costs more. Here is a way out. Convert, but to a lower face amount. Your goals have changed, and the need for 1 million doesn't likely exist any more. Reducing the face amount takes the sting out of conversion because you are buying far less coverage. One more tip: find out from the carrier what the minimum face amount is for their conversion option for available permanent plans. That way, you can "price up" from there.

Regarding penalties; I take it that you mean charges or something like that for bailing on the term plan to convert to a permanent plan. Nope, no penalties.

Regarding "interim" process; you are referring to the exam? If so, then rest assured, there is no new physical to deal with on conversion and you will keep the same rate class as you have for your term plan, which has an effect on cost, especially if your health has declined since you purchased the term plan. Feel free to contact me for sales pressure free advice any time.

$commenter.renderDisplayableName() | 09.30.20 @ 15:39


March 15, 2016

Yes, there is a sizable cost difference between term insurance and permanent. You don't have to convert all your term however. You can make it more budget friendly and convert chunks of your coverage. A term conversion is a simple procedure, you don't have to qualify or prove your health. Usually it is a simple application telling the insurance company what you want to do with what you already have. Your death benefit is not at risk during this process, you're still covered to your full amount of coverage.

Conversion can be a great thing. I have used this many times where a person's health has changed so badly that they may be un-insurable for any new plans. But the conversion option is always there for them. So if they were super preferred when they bought the policy and table 8 now (very poor health) they can convert their term as a super preferred and get covered for the super preferred price.

$commenter.renderDisplayableName() | 09.30.20 @ 15:39