Upgrading Your Life Insurance: Is Switching from Term to Perm Right for You?

As life happens and your needs change, you may find yourself questioning whether your current life insurance coverage is the best fit for you. If you currently have a term life insurance policy but are considering switching to permanent life insurance coverage, you may be wondering if it’s even possible to make the change. The good news is that it is possible, but there are some important factors to consider first.

Term Life Insurance vs. Permanent Life Insurance

First, let’s review the key differences between term life and permanent life insurance.

Term life insurance provides coverage for a specific period of time, typically 10, 20 or 30 years. If you pass away during the term of the policy, your beneficiaries will receive a death benefit. Once the term is up, the policy expires, and you no longer have coverage—so your beneficiaries would not receive a death benefit if you died after the term. There is usually no cash value attached to a term life insurance policy.

On the other hand, permanent life insurance provides coverage for your entire life, as long as the premiums are paid. In addition to a death benefit, permanent life insurance policies also have a cash value component that grows over time. This cash value can be used for a variety of purposes, such as borrowing against the policy or using it to pay premiums.

Why Switch to Permanent Life Insurance?

There are several reasons why you might consider switching from term life to permanent life insurance coverage: 

You want coverage for your entire life: If you have ongoing financial obligations or dependents that will need support for your entire life, permanent life insurance may be a better fit for your needs.
You want to build cash value: Permanent life insurance policies build cash value over time, which can be a valuable asset for a variety of purposes. You could borrow cash value for things like college tuition or retirement income, for example. When you take a loan from your permanent insurance policy, the borrowing rates tend to be relatively low because you’re using the cash value as collateral.
You want to lock in your premium: With term life insurance, your premium is typically fixed for the term of the policy. When the term is up, however, you’ll need to renew the policy at a new rate. This could be substantially more expensive than when you initially got coverage, depending on how much older you are and if you’ve developed any health conditions. With permanent life insurance, your premium is typically fixed for life, which can provide peace of mind and stability when planning for the future.

How to Switch from Term Life to Permanent Life Insurance

If you’ve decided that switching from term life to permanent life insurance coverage is the right move for you, there are a few steps you’ll need to take:

Check your policy: The first step is to check whether your existing term life insurance policy allows conversion to a permanent life insurance policy. Most term policies are convertible, which means you could convert your policy to permanent without having to do a new medical exam or underwriting. Some policies only allow it within the first few years of the policy, while others allow it at any point during the term. That’s why it’s essential to check the specific terms and conditions of your policy.

Determine your coverage needs: Before making any changes to your life insurance coverage, it’s important to assess your current and future financial needs. Consider factors such as outstanding debts, ongoing expenses and the financial needs of your dependents.

Research and compare policies: There are a variety of permanent life insurance policies available, each with their own benefits and drawbacks. Be sure to research and compare policies from different providers to find the best fit for your needs and budget.

Apply for a new policy: If you’ve determined that you either can’t or don’t want to convert your term policy, you’ll need to apply for a new permanent policy. This process may involve a medical exam and underwriting, depending on the policy and your health history.

Cancel your existing policy: Once your new policy is in place, you can cancel your existing term life insurance policy or let the term expire. Be sure to coordinate the timing of these changes to ensure there is no gap in your coverage.

It’s important to note that the premium for a permanent life insurance policy is typically higher than for a term life insurance policy, since permanent policies provide lifetime coverage and have a cash value component that accumulates over time. Before converting, it’s essential to consider whether the higher premium is affordable and fits within your overall financial plan. We recommend meeting with an insurance professional to make sure you’ve carefully considered the costs and benefits.