Converting a Term Life Insurance Policy to Whole Life Insurance

South_agency/Getty Images
Bankrate Logo

Why you can trust Bankrate

While we adhere to strict , this post may contain references to products from our partners. Here's an explanation for .

Term life insurance that lasts for only a certain number of years can be a bargain. But if you’re a person with commitment issues and don’t turn your policy into something longer-lasting when you have the chance, it can prove costly.

Also called temporary insurance, term life guarantees a fixed benefit if the policyholder dies during the term. For example, a 20-year term policy with a death benefit of $100,000 may cost $25 a month. If the policyholder dies before the 20 years end, the company pays the death benefit.

While financial advisers promote term insurance as an excellent and very affordable way of protecting against financial disaster, they warn against sitting on a policy until it is too late to replace it with a permanent option.

What happens to term life insurance at the end of the term?

If you survive past the term of your life insurance policy, all the premiums you paid are kept by the insurance company and your coverage ends. For example, if your term ends on February 21, 2021 and you pass away February 24, 2021, your loved ones will not receive any death benefit because the policy ended.

How to convert term life insurance to whole life insurance

Knowing how to convert term life insurance to whole life insurance is a good idea. Converting a temporary policy into a permanent one will save you from losing all the money you paid in premiums if you outlive the term. Here’s how:

  1. Talk to your insurance company about what types of permanent life insurance is available and the conversion cost.
  2. Fill out a life insurance conversion application.
  3. Choose the amount of life insurance you’d like in the conversion.
  4. Choose how you’d like to be billed for premiums (annual, quarterly or monthly).
  5. Enter bank account information if you’re setting up automatic withdrawals.
  6. Assign beneficiaries. Don’t forget to include their Social Security numbers.
  7. Sign the application.
  8. Mail, fax or upload the application.

Why you should convert from term to whole life insurance

Whole life insurance expands on the benefits of term life. You’ll still have a death benefit you can leave to your beneficiaries, but a whole life policy adds more. Here’s why you should convert to a permanent policy:

Build a cash value account

When you convert a term life product, you’ll add a second feature — a cash value account. You can access the money in the account by borrowing from it and paying it back.

Your policy won’t expire

A whole life insurance policy is permanent. Once you convert from a term policy with an expiration date, you can’t be kicked out of the permanent policy, unless you stop paying your premiums.

You’ll lock in premiums for life

Since a whole life insurance policy doesn’t expire, whatever the premiums you agree to will be the same for life. You’ll know what you’re paying for the rest of your life.

Outliving the term

What happens if I outlive my term life insurance? Here’s the rub with standard term life insurance: If the policyholder outlives the 20-year term, the contract expires and the insurance company keeps the premiums.

“I like to tell my clients that term will almost never pay — and that’s a good thing. It means you are still alive,” says Val Vogel, president of financial planning firm Burns, Vogel and Associates in New Orleans.

Term insurance should be considered insurance in the most pure sense, he says: as a hedge against the unexpected.

Because term is written as temporary insurance and is not necessarily intended to pay out, large policies cost a fraction of the cost of a comparable permanent option, such as variable, whole or universal life.

Young families starting their lives are especially good customers for term insurance, says Patrick Bowen, vice president and senior account manager for Legal & General America life insurance.

A perfect combination

“That’s because you may have a situation where a primary breadwinner wants to purchase a large amount of insurance to care for, say, young children and perhaps a spouse without a job,” Bowen says.

They would require a lot of money if their breadwinner dies young, but the spouses typically don’t have a lot of cash because they are beginning their careers.

Plus, much of the money they do have may be tied up in large debts, such as student loans or a new mortgage. This combination of large financial obligations and low cash flow make the inexpensive temporary policies so attractive.

The catch comes as families mature, the breadwinners age and the policies approach their expiration. As situations change, a household may need to consider transforming its term policy into a permanent one.

Conversion clauses common

A clause written into most term insurance contracts allows a policyholder to make that life insurance conversion.

“The way I would describe it is when someone purchases term, in essence they are leasing insurance with an option to buy,” Bowen says. “The convertibility clause is your chance to convert without new evidence of insurability. But if you aren’t paying attention and forget to convert within your allotted time, you are out of luck.”

The conversion clause allows heads of household, for a price, to transform their temporary insurance into permanent life insurance without having to requalify or undergo physical examinations.

Not all policies have a conversion clause, and ones that do generally cost more. But that clause can be worth the expense, Vogel says.

How it works

Let’s say a woman has a 20-year term policy with a 10-year conversion clause. Nine years into her contract, the policyholder develops heart disease, diabetes or some other health problem.

Because she is still within the 10-year conversion period, the policyholder is free to convert the policy. By converting to a permanent policy in time, she would not need a new physical exam and would have the same coverage at a lower annual premium than that of a new policy.

If the policy had been written without a conversion clause, the policyholder would be faced with an expiring policy and astronomical renewal premiums, if she were insurable at all.

So, first, you want a policy that can be converted, Vogel says. And then, “The most important rule of thumb is to convert before it is too late,” he adds.

Review your policy on an annual basis

To make sure the conversion window doesn’t sneak up, Bowen suggests reviewing your policy with an agent on an annual basis.

“Certainly, when you are coming within a year of convertibility, then you really need to come and take a look at your plan and check your health, financial picture, everything,” he says.

The development of a health problem is not the only reason to convert a policy.

As a rule, the older you are, the more expensive you are to insure. So, if you can begin paying toward a permanent policy while in your 20s, the monthly premium will be much lower than someone in their 50s would pay.

And, as families mature, financial needs change. When you’re young, you may need a policy with a sizable death benefit to replace your income and provide for three small children, but having such a large policy may no longer be as important after you pay down the mortgage and the children grow up.

Determining how much to buy

“A rough rule of thumb on how much you should buy is to take a multiple of your income,” Vogel says. “If you only want enough insurance to take care of your family in the years after you die and set them up until they can get back on their feet, buy a policy that pays four to six times your annual salary. But if you want to set them up on a trust fund so they are taken care of for the rest of their lives, then look at something larger, like 20 times your salary.”

One strategy is to buy the largest term policy you can afford early on, and when you can afford more, supplement your term policy with a smaller permanent policy meant to cover end-of-life expenses, such as inheritance taxes, mortgage and funeral costs.

“When the big block of term is scheduled to expire, your children should be out of the house, many of your obligations will be paid off and your financial situation will be such that you may not need so much insurance anymore,” Vogel says. “Then you can decide if you want to convert your term.”

Frequently asked questions

Can you switch insurance companies?

You can switch insurance companies, but any premiums and death benefit you’ve paid will be lost.

What happens if you outlive your term life insurance policy?

If you’re wondering what happens to term life insurance if you don’t die, it’s simple. All the money you paid in premiums and the death benefit go to the insurance company. Once the policy has expired, you’re no longer covered. If you’re worried about this possibility, consider a life insurance conversion to a permanent policy.

What is the term life insurance conversion cost?

The conversion cost depends on the amount of the policy. Expect to pay more for whole life insurance because you’re paying for two parts — the death benefit and cash value.

Written by
Cynthia Paez Bowman
Personal Finance Contributor
Cynthia Paez Bowman is a finance and business journalist who has been featured in Bankrate, Business Jet Traveler, MSN,, and She regularly travels to Africa and the Middle East to consult with women’s NGOs about small business development and works with select startups and women-owned businesses to provide growth and visibility.