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How Do You Convert Your Life Insurance?

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Life insurance policy conversions take place every day.

Sometimes, your best option to meet your current life insurance needs is through converting your existing policy.

Referred to as conversion privilege, life insurance contracts often allow you to change to a different form of coverage without a medical exam.

If your policy is nearing expiration, or major life events have occurred, now is an excellent time to review your options.

Consider this your go-to guide to the conversion option of a life insurance policy, including the types of conversion, requirements, how they work, and the pros and cons of converting your policy.

What Is a Life Insurance Policy Conversion?

Conversion privilege is a contract provision to a life insurance policy in which the insured may switch to a different form of coverage without the need to demonstrate evidence of insurability.

two people discussing life insurance policy conversionPut simply, if your life insurance policy includes this privilege, and most do, you have the option to convert your coverage to a different type of life insurance.

If you have your policy handy, you can usually comb through and find where it discusses what conversion options you may or may not have.

Before you convert your life insurance, it’s important to understand the ins and outs of converting coverage and to consider all of your options.

We highly recommend you speak with an independent agent before trying to modify your policy in anyway; some policy changes can not be reversed!

Types Of Life Insurance Policy Conversions

Most policy conversions are from term to whole life. However, other forms of coverage convert, too.

Policy TypeConverts To
TermWhole, Universal
GroupTerm, Whole
UniversalWhole
WholeTerm (rare)

Let’s consider the definition of each type of life insurance that can be involved in a policy conversion.

Term

Term life insurance provides coverage for a specific period of time.

Typically the most affordable form of coverage, term life insurance is most commonly sold in the following lengths:

  • Annually Renewable
  • 5 year
  • 10 year
  • 15 year
  • 20 year
  • 25 year
  • 30 year

There is no cash value and the death benefit and premiums are almost always level. 

Group

Group life insurance covers a group of people under a single contract, often provided by your employer.

Usually, the coverage offered by group life insurance is a modest term policy, which is a component of an employee’s benefits package.

Sometimes, a group policy is purchased through another entity, like a membership organization. 

As referenced above, you may be able to convert a group policy into term or whole life insurance, allowing you to opt for affordable temporary coverage or permanent protection.

Universal

Universal life insurance is a form of whole life insurance that includes an investment component.  Premium payments and the death benefit are often flexible.

If premium payments exceed the cost of insurance (COI), the additional funds are placed into the investment component. 

Universal policies can be converted to whole life insurance.

Whole

Whole life insurance provides coverage for your entire life and includes a cash-value element.  

Also referred to as straight life, your policy will not expire, coming with more guarantees than any other type of coverage.

And, the cash-value typically includes a modest, guaranteed interest rate for growth. 

While most people convert their life insurance to a whole life policy rather than away from one, there are some rare instances in which a whole life policy can be converted to term life coverage.

Other Methods

While the following are not technically policy conversions, these life insurance options are worth noting.

  • Annuity: If you are in need of funds during retirement, consider moving your life insurance policy to an annuity via a 1035 exchange.
  • Long-term care: Some life insurance policies can be used to fund (typically expensive) long-term care insurance.
  • Riders: Your policy may extend life insurance protection to others, like your children or your spouse, through a rider.

Some riders allow you to transition the coverage to a separate life insurance policy.

Always ask about the different types of policies, and their features, to determine the best fit for your needs.   

Should You Convert Your Life Insurance Policy?

At the heart of your decision to convert a life insurance policy – or not – should be three primary factors:

  1. Your budget
  2. Monetary requirements of those you care most about
  3. Types of life insurance coverage you currently qualify for

Conduct a needs’ analysis, with the help of an independent agent, to determine the best option for your life insurance coverage.

A life insurance policy conversion could make sense in the following scenarios:

Lifelong dependent

Change is the only constant. Perhaps since your original policy was purchased, your family has grown and you now have a child who will always need you.

If you have a loved one with special needs, who will be financially dependent on you for their entire life, a policy conversion may make all the sense in the world.

Estate Planning

Whole life insurance is often an excellent tool for estate planning.

Ideally, you want your assets to go to your heirs.

However, a number of items can bite into your estate, especially if it’s sizable.

  • Federal estate tax
  • State estate tax
  • State inheritance tax (some states)
  • Final bills, debts, medical and funeral costs

By converting to whole life insurance, your estate will have liquid funds to cover taxes and bills, rather than dipping into money and assets you would prefer to go to your loved ones.

Health change

One of the most common reasons for a policy conversion is when a person has developed health complications since their initial policy was issued.

Sometimes, depending on the specific diagnosis, a health condition can preclude you from purchasing traditional life insurance.

If your current health only allows you to qualify for guaranteed issue life insurance, converting your existing policy likely provides the best financial protection.

How to Convert Your Life Insurance Policy

Usually straightforward, policy conversions require a small number of basic steps.

There are no fees associated with policy conversions; however, your premium rates will almost always change.

Here are the steps you need to take to convert your life insurance policy.

1. Determine the Type of Policy You Are Converting to

Conduct a financial analysis to decide on the best type of coverage for you and your loved ones.

The most common conversion option of a life insurance policy is from term to permanent.

You will want to, with the help of an independent agent, understand the specific life insurance products available to convert to, like universal or whole life.

2. Collect Your Current Policy Information

Be sure to have on hand:

  • Specific product name
  • Date of policy issuance
  • Term length (if applicable)
  • Face amount (e.g., $500,000)
  • Health rating (e.g., Standard)
  • Tobacco rating
  • Birthdate

3. Look Into Conversion Credits

Some, but not all, life insurance companies offer what is known as a conversion credit.

A conversion credit is a premium reduction offered in response to the significant price hike for the permanent policy.

Typically, the discounted premiums last for just the first year of your conversion. Some companies, though, may do it differently, and credit you with a percentage of the premiums you’ve paid.

Your conversion credit will be reduced if you are establishing a partial conversion of your policy.

4. Confirm Conversion Based on New Policy Illustrations

Before you sign conversion paperwork, take a look at the new policy’s illustrations (ask your agent to see one).

Remember, your policy should reflect the monetary requirements of those you care most about.

Verify the new policy meets your needs.

5. Sign Your New Life Insurance Contract

Your agent will guide you through the signature process of your new life insurance policy.

The policy is issued and delivered to you. Often, policy signatures and delivery are completed electronically, streamlining the process of updating your coverage.

Requirements of Conversion Privilege

Each life insurance carrier uses different stipulations for if, when, and how a policy may convert to a different type of coverage.

Called the conversion period, let’s review its most common requirements.

  • Age Limit: Your premiums are based on your age at the time of conversion. The older you are, the more risk you present to the carrier. Typically, the maximum age limit for when a policy is allowed to be converted is around 65, 70, or 75.
  • Time Limit: Again, life insurance companies have thresholds for the amount of risk they are willing to absorb. The more time that has passed, the higher the odds of your health status changing.
  • Carrier Specifics: While the above are typically true, each carrier will have its own criteria for converting policies. We’ll take a closer look below.

Let’s consider some specific conversion requirements for term policies from top life insurance companies – since most conversions are from term to permanent.

CompanyProductAge LimitTime LimitConverts to
AIGSelect-A-Term70 years oldEnd of initial termUniversal, Whole
BannerOP Term70 years oldEnd of initial termUniversal
ForestersYour Term65 years oldEnd of initial termAny permanent product
John HancockJohn Hancock Term70 years oldEnd of initial termFirst 4 policy years; any permanent product
Afterwards; designated product only
LincolnLife ElementPolicy issued prior to 9/12/16; 70 years oldEnd of initial termFirst 7 policy years; any permanent product
Afterwards; designated product only
Mutual of OmahaTerm Life Answers75 years oldFirst 20 years onlyAny permanent product
North AmericanADDvantage Term74 years old (69 for 30 year term)End of initial termAny permanent product
PrincipalPrincipal Term70 years old10 year term; 7 years
15 year term; 12 years
20 year term; 15 years
30 year term; 20 years
Any permanent product
ProtectiveClassic Choice70 years oldDuring years 1 – 5 of initial termAny permanent product
PrudentialTerm Essential or Term Elite65 years oldEnd of initial termAny permanent product
SBLISBLI Term70 years oldEnd of initial termWhole, Conversion Universal

Pros of Converting Your Life Insurance

A life insurance policy conversion may or may not be your best bet. Your specific situation, including your current health, must be taken into consideration.

There are plenty of reasons to convert your policy.

  • Maintain insurability: If you’ve experienced serious health complications since your policy was issued, conversion can be a gift. You won’t be required to participate in any evaluations to provide evidence of insurability.
  • No medical exam required: The idea of undergoing a medical exam, sometimes called a paramedical by underwriters, sounds tedious, or just plain awful, for many. You don’t have to take part in any sort of physical evaluation during the conversion process. No nurses, no needles, no liquid samples. Signatures only.
  • Permanent policies have additional benefits: Chances are, your policy will convert to a permanent product. Permanent life insurance includes more features than its term counterpart, like cash value, a policy loan option, and coverage which won’t expire. These additional components often aid in retirement and estate planning.

Cons of Converting Your Life Insurance

Policy conversion is not for everyone.

Consider some of the downsides of converting your life insurance policy.

  • Cost: Be prepared for your premiums to go up, often significantly since most policies convert to a permanent product. To counteract sticker shock, many opt to reduce the face amount of their policy during the conversion process.
  • You may have better options: Especially if you have not experienced a significant health change, you may be better off purchasing a new life insurance policy, instead of converting. To decide, consider how long you need coverage, what your loved ones’ financial needs will be, and whether or not you could qualify for an affordable policy that meets those requirements.

Alternatives to Life Insurance Conversions

Policy conversion is not your only option. Ultimately, your policy should reflect the needs of those who depend on you.

Life insurance is not for you – it’s for your loved ones.

Consider a couple of other options that may be beneficial to your family.

Policy Replacement

Instead of converting an existing policy, it might make sense to purchase a new policy, potentially from another carrier.

To safeguard against policyholders not acting in their own best interest, strict rules and regulations are in place regarding policy replacements.

Requirements are established by the National Association of Insurance Commissioners (NAIC) and individual state departments of insurance to protect the consumer.

A specific process for policy replacements exists for your protection. In essence, through a series of checkpoints, your agent will need to demonstrate that your new policy is a better fit than your existing policy.

There are a few concerns related to policy replacement:

  1. Contestability period starts over
  2. Suicide clause starts over
  3. Permanent policies often include surrender fees

Forego Life Insurance

While highly uncommon, there are some circumstances in which life insurance protection is not necessarily needed.

  1. Your loved ones no longer depend on you financially
  2. You will not owe estate taxes
  3. Your financial assets allow you to be financially independent

If you’re able to check off all three of the boxes above, you may not need to convert or replace your policy.

Just keep in mind, most people need life insurance.

Frequently Asked Questions

Here, we will cover the most commonly asked questions asked about the conversion of a life insurance policy.

Can any life insurance policy convert?

No.

However, most term policies do have a conversion option.

You will need to look at the fine print of your policy to verify its ability to convert. An independent agent can help you.

Will it cost more?

Likely, yes.

If you are converting the same face amount from term to permanent coverage, your premiums will increase substantially.

Some people opt to reduce their face amount to lower premiums. Be sure to analyze the new policy’s illustration prior to converting.

Can I add more coverage when I convert?

No. You may only reduce the face amount of your policy, not increase it.

Should I renew my term policy instead?

Maybe.

When the initial term of your policy ends, it’s likely you will have the option to renew the policy, often annually. However, plan to have your premium rates jump.

In other words, when you renew your term policy, your face amount remains the same, but your premiums will increase, usually every year.

Cost-compare and analyze your financial needs to decide whether it makes sense to renew or convert.

What’s the difference between porting and converting a life insurance policy?

Porting a policy refers to group term life insurance that you opt to continue as an individual policy.

Conversely, converting a policy means you change your policy to another form of coverage, typically whole life.

Does it make sense to convert my policy?

Possibly.

Ask yourself the following questions:

1. Has my health changed significantly, affecting my insurability?
2. Do I have a permanent need for coverage?
3. Am I interested in the additional features of a permanent policy (cash value, policy loans, etc.)?

If the answer to the questions above is yes, a policy conversion could be worth considering.

Author:

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Heidi Mertlich

Heidi Mertlich is the owner of NoPhysicalTermLife.com. She is an independent life insurance agent specializing in no medical exam life insurance. Heidi is also an author for LifeInsurancePost.com, an online community of life insurance experts.

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