Term to Perm: When Does It Make Sense To Convert Your Life Insurance Policy?
Written by: Matrix Direct, Inc.
If you have a term life insurance policy, you might have chosen it over other types of life insurance because a term life policy offers affordable, practical coverage.
Term life policies can be flexible and personalized – you pick the coverage amount you need and the length of time you need protection. Typically, they are also more affordable than other types of life insurance, such as whole life.
Why, then, would someone convert a term life insurance policy to a permanent life policy? And when should you consider making such a conversion?
Changing terms with the times
Term life insurance is a very popular type of life insurance because of its affordability. In fact, it’s the number one choice of life insurance for families.*
As time goes on, particularly as the term life policy approaches the end of its level premium period, you may not be as concerned about having the most affordable coverage. You might be making more money or have accrued assets and are now thinking in terms of tax planning and transferring wealth to your children.
Plus, you may need life insurance coverage for longer than you initially thought when you purchased your current term life insurance policy.
Extending coverage
Do you still want life insurance coverage after your initial term period ends? Converting your term life policy to a type of permanent life insurance (such as universal life) before your level premium expires can be a smart way to go.
It may be possible to purchase another term life policy, but because premiums increase as we get older, a new term life policy might not be as cost effective as it was when you got your existing policy. Your health and medical history may have changed as well, which could make a new term policy considerably more expensive ― if it’s even possible.
You can choose to extend your current term life insurance policy after the initial term period expires. This option is called an “annual renewable term” and basically it allows you to continue to renew your term life policy each year (up to a maximum age). The premium rates go up each year, however, and can be very expensive.
By converting your term life policy to a permanent one, you can select a premium payment that remains level for the rest of your life.
Building cash value
Another compelling reason to convert a term life policy to permanent life insurance is to have a policy that builds cash value. And, the federal income taxes are deferred, so you aren’t paying them annually (according to current tax law).
Graduating to perm
If you think converting your term life policy to a permanent policy could make sense for you, call a licensed agent to discuss your options. You may be able to take advantage of converting your policy with no lapse in coverage and no need for any additional evidence of insurability.
In other words, no need for additional medical underwriting. In many cases, converting is a simple process that helps provide years of added peace of mind, as well as financial benefits.
* Source: LIMRA MarketFacts 2005.
About the Author:
Matrix Direct, Inc. is one of the country’s leading life insurance agencies. If you would like to get a term life quote, you can contact us today and one of our life insurance agents will help you. Please visit MatrixDirect.com for more information about us.
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