Converting Term to Whole Life [6 reasons to convert to Whole Life]

1. You’ll probably outlive your term life policy

Term life polices are great in that they’re affordable. Their biggest risk is that it’s temporary coverage and your beneficiaries may never get a dime if you outlive the policy. If you convert life insurance from term to whole life, your dependents are guaranteed to receive a death benefit. 

2. You’re Rich!

Well, maybe you aren’t rich, but perhaps you’re simply better off than when you first purchased your term life policy. Remember, whole life insurance will cost more and some people just can’t afford it. Even when you’re healthy, the premiums are more expensive than term. If you have health problems – it’s even more expensive. 

Most people have more money as they age. Sometimes this is a perfect scenario to convert your term life policy to a permanent policy.  You may have wanted a permanent policy when you were younger and now you can afford it. 

Check to see if your conversion allows you the option to convert all or some of your term policy. Remember to only convert the coverage coverage that you will need for lifetime coverage. 

3. Estate Taxes and Planning

If you’re doing very well financially, you’ll want to know that your heirs may be responsible for paying estate taxes after you have died. With a permanent whole life policy, the death benefit can be used to to pay your estate taxes.

Every state is different, but federal estate taxes were applied to any estate over $5.49 million per person or $10.98 million per couple in 2017. Just know that your spouse won’t owe estate taxes from an inheritance from their deceased spouse.

4. You have lifelong financial dependents

You may have loved ones or dependents that will need financial assistance when you die. Your permanent policy can be thought of as a savings account that can be used to care for your dependents. This is frequently used for dependents with special needs or require medical care. Your whole life or permanent policy can fund a trust for your dependent. Always seek out help form an attorney or financial advisor whose specialty is with special needs. They’ll help you with setting up a trust and choosing the right policy.

5. You’re In Poor Health

This is a big one because your health will not make or break your ability to convert to a permanent policy. Life insurance companies won’t look at your current health at the time of conversion. It’s quite common for someone to develop an adverse health conditions during the term length of their term life policy. Just know that you can still take advantage of converting the term to whole life even with health issues.

You won’t need to take a medical exam and you’ll probably get the same health class rating you received when you bought your term policy.

6. Your permanent policy premiums are level for life

Your permanent life insurance premium will be locked in and the same for your entire life. You’ll pay the same premium and won’t have to be concerned about rate increases or switching policies like you did with term.

7. Cash Value Growth

Part of your permanent life insurance premium is put into a savings account that builds cash value. It isn’t quick, but its growth is tax deferred. You can borrow and use the permanent policy’s cash value anyway you want. This provides you a great financial resource in case an emergency occurs. This feature is not available with a term life policy. 

With that said, it’s not always a good idea to withdraw the cash value from your permanent policy unless you have no other funding options. The reason is because if you want to cash out your entire policy – you may be subjected to fees if you’re in the “surrender charge period.” The surrender charge period will depend on the company. A better strategy is to use your permanent policy as a tax free savings policy for your beneficiaries. You also should incorporate a sound investment strategy because permanent policies aren’t a substitute for proper retirement planning. Don’t purchase permanent life insurance unless you in it for the long term. It typically takes many years to grow significant cash reserves.

Related: Top 10 Cash Value Whole Life Companies

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