Life doesn’t stand still, and neither do your financial responsibilities. Over time, you may start to wonder whether the life insurance policy you chose years ago is still the right fit. If you currently have term life insurance but are thinking about moving to permanent coverage, the good news is that it’s often possible. However, before making the switch, it’s important to weigh the benefits and trade-offs carefully.
Term Life Insurance vs. Permanent Life Insurance
Term life insurance is designed to provide protection for a set number of years, commonly 10, 20, or 30. If you pass away during that period, your beneficiaries receive a death benefit. But once the term ends, so does the policy, leaving you without coverage unless you buy a new one. Term policies also don’t build cash value.
Permanent life insurance, by contrast, is designed to last a lifetime as long as you keep paying the premiums. In addition to the death benefit, these policies build cash value that grows over time. You can use that cash value in several ways, including borrowing against it, paying premiums, or supplementing retirement income.
Why People Consider Making the Switch
There are a few common reasons policyholders decide to convert from term to permanent life insurance:
- Lifetime protection: If you want coverage that never expires, permanent insurance ensures your loved ones are always protected.
- Cash value growth: Unlike term, permanent policies accumulate cash value, which can serve as a financial resource for things like tuition, emergencies, or retirement.
- Fixed premiums for life: With term insurance, your premiums may rise dramatically if you renew after the original term. Permanent coverage locks in your rate for the long haul, providing cost predictability.
How to Transition from Term to Permanent
If you’re leaning toward switching, here’s how to go about it:
- Review your policy details: Many term life insurance contracts allow for conversion to permanent coverage, sometimes without requiring a new medical exam. However, there may be time limits on when you can exercise this option.
- Evaluate your needs: Consider your debts, family obligations, and long-term goals. The right amount and type of coverage should align with your overall financial plan.
- Compare policy options: Permanent life insurance comes in different forms—such as whole life and universal life—each with its own benefits and costs. It’s worth shopping around to see what works best for your budget and goals.
- Apply if necessary: If your term policy doesn’t include a conversion feature, you’ll need to apply for a new permanent policy, which could involve a medical exam.
- Coordinate coverage: Don’t cancel your term policy until your permanent coverage is officially active to avoid any gaps in protection.
Important Considerations
Permanent life insurance is generally more expensive than term coverage, reflecting its lifelong protection and cash value benefits. Before making the leap, think about whether the higher premiums fit comfortably into your financial plan. Speaking with a licensed insurance advisor can help you evaluate whether converting your policy makes sense for your unique situation.
Switching from term to permanent life insurance can be a smart move for some, but it’s not the right choice for everyone. The key is to balance your long-term financial security with what you can realistically afford.
