Should You Convert Term Life Insurance to Permanent? What You Need to Know

For many individuals and families, term life insurance is the go-to choice for affordable and straightforward coverage. It provides a death benefit for a set period, typically 10, 20 or 30 years, providing protection during the years when financial responsibilities like mortgage payments, child-rearing or college funding are most pressing. But what happens when that term period begins to wind down, or your needs evolve? That’s where the option to convert a term life insurance policy to a permanent one can offer potential financial advantages. Learn more about this in our blog, Life Insurance Planning: The Difference 20 Years Makes.

If your term policy includes a conversion privilege, it may be worth exploring how converting to a permanent policy can support your long-term goals, lock in your insurability and create enduring financial value.

Why consider converting your term life policy?

Converting a term policy to a permanent policy means switching your temporary coverage to lifelong coverage without going through the underwriting process again. This can be especially beneficial as you age, your health changes or your financial goals shift.

Here are several key benefits to consider:

1. No medical exam required

One of the biggest advantages of conversion is that you don’t need to prove insurability again if you convert during your policy’s conversion period. You’re essentially locking in your health classification from when you originally bought the policy.

If your health has declined since you first took out the policy, this can work in your favor if you’re within the conversion period of your policy. Without a conversion privilege, you’d likely need to apply for a new permanent policy and face higher premiums—or even risk being declined altogether.

2. Lifetime coverage

Term insurance eventually ends. If you outlive your policy, it expires with no residual value. But permanent life insurance, such as whole life or universal life, covers you for your entire lifetime as long as premiums are paid. That can be useful as you age and want to ensure your loved ones will receive a death benefit, no matter when you pass away.

This can also be particularly relevant if you want to:

• Provide a financial legacy for children or grandchildren.
• Cover estate taxes or final expenses.
• Fund a charitable gift.
• Ensure continued financial support for a dependent with special needs.

3. Builds cash value over time

Unlike term insurance, permanent policies accumulate cash value, a benefit you can access while you’re alive. That cash value grows tax-deferred and can be used for any purpose: emergency expenses, additional source of funds in retirement, paying policy premiums or even funding a major purchase.

By converting early in the term, you can help give your cash value more time to grow and is a long-term savings strategy worth considering.

4. Flexible planning tool

Permanent life insurance can also serve as a versatile tool in broader financial and estate planning strategies. When integrated thoughtfully, it can help:

• Diversify retirement income sources.
• Act as a backstop against market downturns by accessing cash value.
• Equalize inheritances among heirs, for example if one child inherits a business and the other receives the life insurance proceeds.
• Create liquidity in estate or business succession planning.

5. Protect against unexpected future needs

When you first bought your term policy, you may have envisioned your financial responsibilities being wrapped up by the time it expired. But life doesn’t always go according to plan.

You might find yourself needing life insurance longer than expected due to:

• Supporting adult children or aging parents.
• Delayed retirement.
• New health challenges.
• Business obligations or debt.

Converting to a permanent policy may help you adapt your life insurance to meet these unexpected, longer-term needs, without having to qualify again.

When should you convert?

If your term policy includes a conversion deadline, it’s important to know when it is. Often, this is a set number of years, the end of the term or a specific age cutoff, such as 65 or 70. Waiting too long could mean missing the opportunity entirely.

A good rule of thumb: review your policy and conversion options at least a few years before the term ends. The earlier you convert, the lower your premiums will generally be because permanent policy costs are based on your age at the time of conversion.

You don’t have to convert the full face amount, either. Many policies allow partial conversions, which means you can convert a portion of your term coverage to permanent and keep the rest as term. This can help balance protection and affordability.

Things to consider

Before converting, here are a few questions to ask:

• Do I still need life insurance coverage beyond my current term?
• Has my health changed since I bought my term policy?
• Would a permanent policy help support other financial goals, like retirement or estate planning?
• Can I afford the higher premiums of a permanent policy?
• What permanent options does my insurer offer for conversion?

Working with a financial professional can help you evaluate whether a conversion makes sense based on your situation and, if so, how to do it most cost-effectively. Learn more about life insurance offerings from Ameritas.

Disclosures

Representatives of Ameritas do not provide tax or legal advice. Please consult your tax advisor or attorney regarding your specific situation.

Loans and withdrawals will reduce the policy’s death benefit and available cash value. Excessive loans or withdrawals may cause the policy to lapse. Unpaid loans are treated as a distribution for tax purposes and may result in taxable income.

In approved states, life insurance is issued by Ameritas Life Insurance Corp. In New York, life insurance is issued by Ameritas Life Insurance Corp. of New York.