Converting a term life policy to a permanent one can have a major impact on long term policy values. Permanent life insurance, especially whole life insurance, benefits from guaranteed cash value, the potential to earn dividends, and compound growth that takes place inside the policy. If term life insurance is converted early, those benefits begin earlier.
If you own a term life insurance policy that is convertible to a permanent policy, you need to make sure that you are aware of the conditions that apply to make the conversion. In particular, what the last day to convert is. Individuals owning term life insurance policies may incorrectly assume that the conversion period lasts until the last day of the expiration of the term policy. This is usually not the case. Conversion periods tend to expire years before the expiration of the term policy.
Examples About Converting At Different Ages
At age 35 ROBERT (Preferred Non-Smoker) purchased a $500,000 term policy expiring in 20 years from a top rated life insurance company with an annual premium of $350. At age 40 (5 years later) he then converts to a $500,000 whole life policy (obviously, from the same life insurance company) and his annual premium is then $7,673. He knew that the longer he waited to convert, the more he would pay for the whole life policy. Let’s see how he did over time:
As you can see from the above illustration, ROBERT, taking into account the accumulated cash values of the whole life policy, more than recovers premiums paid over time. At age 70, for instance, he had paid cumulative premiums of $232,290 and the cash value of his whole life policy at that time, was $476,895, or $244,605 over what he has paid.
It should be noted here, that for folks who are concerned with the fact that the money paid for term life insurance is not recovered at the end of the term, assuming that the insured is alive at the end of the term, whole life insurance may be an option.
Then, let’s see what happens if ROBERT decides to wait until he is 50 years old to convert:
As you can see from the above charts, by waiting to convert at age 50, ROBERT’s Net Values are only $102,384 at age 70, or $142,221 less than if he would have converted at age 40.
Are You Considering Converting a Term Policy to a Permanent One?
If you own a term policy that is convertible to a permanent policy, and would like to evaluate if it makes sense for you to convert to a permanent policy, gives us a call at our Toll Free Number 888-950-8376; or click on CONTACT US.