Most people who purchase term life insurance do so for one reason: to protect their families from having to pay a pile of expenses for Southern California funeral services and others when the primary wage earner of a household passes away. Life insurance is a very important part of your family’s financial plan after you’ve gone.
Unfortunately, term life insurance isn’t forever; you may have been covered for 10, 20 or 30 years, but what will happen after that if you are still alive and well? Many people are reaching the end of their term and wondering whether or not to convert their term life insurance to a permanent life policy.
Permanent or whole life insurance will offer stability in the form of monthly premiums that never change throughout the life of your policy. In addition to this, coverage with a permanent policy can generate extra cash that can be used for important purchases.
Converting your term life policy to a permanent one can also reduce your premiums for the first year. And it often doesn’t matter what you do for a living or what condition your health is in; as long as you are under 75 years of age, and your original policy is still within the conversion period, you often are able to convert a term life insurance policy to a permanent one with no medical questions or the need for a physical (this will depend on the individual insurance company’s specific rules).
Another important benefit of switching is that your policy’s health rating won’t change; even if your wellness deteriorates and you became sick later on in your term policy, your health rating will stay the same as the day your policy was purchased.
And you don’t have to convert your entire term policy at the same time; you can convert pieces of your policy, which will grow your earning power, enabling you to accumulate a higher amount of insurance.
Despite all of the benefits of converting a term life to a whole life policy, many people still haven’t made the move. Instead, they are replacing existing term life policies with cheaper ones every few years, thanks to an incredibly-competitive marketplace with many underwriting advancements and new products to offer.
Of those who did convert their term life to a permanent life insurance policy, many had assistance from their agents. And a higher number of conversions have occurred as a result of enlisting the help of a professional.
Experts suggest that customers plan for a future conversion to permanent life when they’re still shopping for term life policies. While it’s true that most policies offer the option to convert, some won’t. So checking for this option when shopping just makes sense.
Another important item to check for is whether or not there’s a deadline for converting, as many policies will only allow you to convert up to a during-term deadline that they specify. Just as important as knowing the conversion deadline is what your options are if you choose not to convert. At the end of your term, your premiums are likely to jump significantly with no guarantees, forcing you to either pay those expensive premiums to keep coverage or start shopping for a new policy, which can be made more difficult if you’re not as healthy as you used to be.
Keeping your term policy will make sense if you like to keep your premiums low and stable. And you’ll also benefit more from term life insurance if you only need it for a specific amount of time. As well, it’s important to remember that you can purchase permanent coverage to complement your existing term coverage.
Conversion may be for you if you feel that you need coverage that goes beyond what your term life insurance policy can offer you. The need for extra cash, whether it’s for your beneficiaries or large purchases down the road can be met with a permanent policy, thanks to its ability to generate cash value. Conversion may also be a good choice for you if a medical examination would end up raising your current term life insurance policy rates.
Guest author Adam Foley writes on a variety of topics, particularly related to life insurance. He recommends The State Insurance Guide for consumer-friendly information.
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