If you have term life insurance, you know that your beneficiaries are covered for a predetermined period of time. You also know that when your term expires, you’ll either need to renew your policy, shop around for a new life insurance policy, or decide to lose your coverage.

However, you don’t have to wait until your policy expires to make a change. In many cases, you can convert your term life insurance policy into a whole life insurance policy as long as you act before the conversion cut-off date.

When you do so, you’ll get rid of your policy’s expiration date, setting the stage for coverage for the rest of your life, no matter how long it may last.

But is now the right time to convert your term life insurance policy to a whole life insurance policy? The answer to that question depends on your unique needs — and over time, your needs will change. So, how do you decide if it’s time to convert your term life insurance to whole life insurance?

Assessing Your Financial Goals

The first thing you’ll need to do in order to decide if it’s time to convert your term life policy to a whole life policy is to assess your financial goals. After all, there’s a reason you purchased life insurance in the first place. Some of the most common reasons include:

• To protect your spouse from financial hardship should your household lose your income.
• To protect your children from financial hardship should your household lose your income.
• To ensure that your children have the opportunity to further their education, even if you die before you have the opportunity to cover the cost.
• To ensure mortgage payments are covered and your family can keep your family home.

There are countless other goals you may want to achieve through your life insurance as well. And those goals will change over time. So, it’s important to reassess them from time to time to determine if it’s the right time for a shift to whole life coverage.

Long-Term Financial Planning

Life insurance helps to protect those who depend on you from financial hardship should you die. However, it also protects you from financial hardship. That is, as long as you have the right type of policy.

Term life insurance policies don’t build any cash value. However, whole life insurance policies do. In fact, whole life insurance policies can even pay dividends. So, that means these policies might help you generate income in retirement.

Beyond that, you may be able to tap into the cash value of your whole life insurance policy to help bridge financial gaps in retirement. Additionally, life insurance riders can extend your coverage. For example, if you have a long-term care insurance rider, you’ll be able to use a portion of your death benefit to cover your long-term care expenses.

Ultimately, it’s important to consider your long-term financial planning goals when you decide if it’s time to convert to whole life insurance or not. After all, the cash value component doesn’t start to grow until you make the conversion.

Estate Planning

You can use life insurance as an estate planning tool, and a conversion to whole life insurance may help. Here’s how:

• Ease the Tax Burden: Depending on the size of your estate, your beneficiaries may have to pay taxes on what you leave behind for them. However, you can use your whole life insurance to help cover the cost of this tax burden, giving your beneficiaries the ability to keep the assets you’ve left them.
• Pay Long-Term Care Expenses: Long-term care expenses are a significant risk to your estate. After all, a room in a nursing home could easily cost over $10,000 per month. Life insurance with a long-term care rider could help alleviate your estate of this financial burden.
• Pay End-of-Life Expenses: End-of-life, funeral, and burial expenses can easily amount to tens of thousands of dollars. However, if you convert your term life insurance to a whole life insurance policy, you can rest assured that your end-of-life expenses are covered.

Evaluating Your Current Term Policy

Although there are plenty of reasons to consider converting your term life insurance policy to a whole life policy, it’s also important to evaluate your current policy before you make that decision. After all, if your current policy meets your financial needs, there’s no reason to consider the conversion quite yet. Here are a couple of factors you should consider as you evaluate your current life insurance policy:

Policy Expiration

It’s important to understand two expiration dates in your policy:

• Policy Expiration: Your policy expiration date is the date your insurance term ends. For example, if you purchase a 20-year term life insurance policy now, your policy’s expiration date will be 20 years from today.
• Conversion Expiration: Your policy also likely has a conversion expiration date. This is the last day you’re able to convert your policy from term life insurance to whole life insurance. Importantly, your conversion expiration date is typically several months, if not years before your policy expiration date. So, it’s critical that you don’t confuse your policy expiration date with your conversion expiration date.

Consider your policy’s expiration date as part of your decision to convert your policy to whole life. For example, if you still have 15 years left on your 20-year term life policy, you could probably stand to let several more years pass with lower term life premiums before you consider a conversion.

Conversion Options

As mentioned above, it’s important to know when your conversion expiration date is if you plan on converting your term life insurance policy to a whole life policy. However, that’s not the only thing to consider. Chances are, you have a few conversion options. Here’s what you should look for:

• Coverage Amount: You may not be able to convert your term life insurance to a whole life policy with the same coverage amount. Instead, you’ll likely need to choose a new, lower coverage amount or pay significantly higher premiums. Try to find balance between the coverage you receive and the premiums you pay.
• Riders: There are important riders to consider. For example, a long-term care rider could alleviate your need for a standalone long-term care insurance policy. Consider speaking with a financial advisor to discuss your rider options and how they relate to your retirement plan.
• Investment options: You may have options relating to how your life insurance premiums are invested. The decisions you make will impact the growth of your life insurance policy’s cash value. So, it’s important to choose wisely.

Changes in Health and Insurability

Unfortunately, life insurance isn’t accessible to everyone. Your health is one of the biggest factors life insurance providers consider when they determine your eligibility. However, that’s not the only area in which your health plays a substantial role in your life insurance coverage.

Ultimately, the healthier you are when you purchase life insurance, the lower your policy premiums will be. After all, the healthiest people are typically at the lowest risk of death. As such, they pose the least risk to life insurance companies. So, it’s important to assess your health and consider your insurability as you decide whether it’s time to convert your life insurance policy to a whole life policy or not.

Health Status

As mentioned above, your health plays a substantial role in your life insurance coverage, both in terms of your eligibility and the premiums you pay in exchange for coverage. Life insurance applicants in the best health are likely to pay the lowest premiums. After all, they typically have the lowest risk of death.

So, what’s your health status? Has there been a negative change to your health since you first purchased your term life insurance policy? If so, it’s likely crucial for you to convert your term life coverage to whole life coverage before your ability to do so expires.

After all, in most cases, you won’t have to undergo a new health exam when you convert your term life policy to a whole life policy.  So, if you’re still as healthy as you were when you first signed up for your life insurance policy, it may be a wise idea to stay in the term life insurance category.

On the other hand, health typically declines as you age. If you’re noticing a decline in your health, it’s likely time to consider a conversion to a whole life policy.

Locking in Insurability

As mentioned above, insurers have to consider your health as a factor when they decide whether or not to approve your coverage. After all, not everyone qualifies for life insurance coverage. The good news is that, in most cases, when you convert your term life insurance to permanent life insurance, you can do so without a health exam.

So, even if your health has declined since you first purchased your coverage, you’ll be able to lock in insurability by converting your policy to a whole life policy. But declines in your health may not be the only reason to consider the conversion.

The simple fact is that you purchase insurance to cover you in the event the unexpected happens. Several ailments can pop up out of the blue and disqualify you from meaningful life insurance coverage. As a result, even if you’re healthy, it may be wise to convert to permanent life insurance. After all, once you make the conversion, you’re covered as long as you make your premium payments.

Investment and Cash Value Considerations

It’s also important to remember that the cash value component is a significant difference between term life insurance and whole life insurance. Ultimately, term life insurance has absolutely no cash value. However, whole life insurance builds cash value over time.

That cash value is an important consideration as you determine whether it’s time to convert your term life insurance policy to a whole life policy. After all, if you simply stick with your term life insurance policy until the policy expires, and you don’t die between now and then, your insurance will expire valueless. However, if you convert your policy to whole life insurance, and start to build cash value, you can rest assured that your policy won’t expire without value.

So, what cash value factors should you consider? Here are a couple to think about before you make your decision.

Building Cash Value

Building cash value doesn’t happen overnight. Although you’re adding to the cash value of your whole life insurance policy every time you make a premium payment, it takes time to build that value into something meaningful. After all, the real power of investments happens when returns compound over time. And since life insurance is a type of investment, it’s no different.

The simple fact is that the longer you wait to convert your term life insurance to whole life insurance, the longer it will take for your whole life insurance cash value to grow. Moreover, due to the compounding nature of investments, waiting just a few years can have a significant impact on the cash value of your life insurance policy when you retire.

Utilizing Cash Value

It’s also important to consider the different ways you can use the cash value associated with whole life insurance and whether or not you’d likely take advantage of them. After all, if you have no use for cash value, why pay higher premiums to access it? Nonetheless, most people can use their life insurance’s cash value in one of the following ways:

• To Supplement Retirement Income: Even if you’ve saved money all your life, retirement can pose some significant financial challenges. Your life insurance’s cash value may bridge the gap between the money you’ve saved and the money you need to enjoy a financially free retirement.
• Cover the Cost of Long-Term Care: According to the Administration for Community Living, nearly 70% of people ages 65 and older will need some form of long-term care. A long-term care rider on your whole life insurance policy can help you cover this cost.
• Emergencies: From medical bills to home and auto repairs, emergencies happen. Your life insurance’s cash value can help you cover the cost of those emergencies.

If you think you’ll need to tap into your life insurance’s cash value to cover any of the costs above, consider converting your term life policy to whole life coverage.

Family and Dependents

As you consider converting your policy to whole life insurance, it’s also important to think about the people you purchased life insurance to protect in the first place. After all, your family and other dependents are the people you hope will benefit most from your policy. So, what factors should you consider when it comes to your dependents and how converting to a permanent life insurance policy may impact them?

Providing for Dependents

Although your children may grow up and leave the nest at some point, they’ll likely need to lean on you for financial support from time to time. In fact, you may be their leaning post until the day you die.

But what happens when you die? Who will be there to help make sure your children have everything they need? Your life insurance can help ensure your children are taken care of in the long run.

Moreover, if your spouse depends on your income, that’s not a dependency that will end when you die. In fact, a loss of income could put your spouse in financial hardship. A permanent life insurance policy can help ensure that you never leave those you love without your financial support.

Beneficiary Needs

It’s also important to think about the long-term needs of your beneficiaries. For example, your spouse may depend on you to mow the lawn or take care of handyman tasks around the house. If you’re not there, they’ll need to hire someone to take care of these things.

Moreover, if you have a disabled child, they may have more significant financial needs to think about. So, you should consider the needs of your beneficiaries as you decide if converting to permanent life insurance is wise and, if so, which options to choose.

Seek Professional Financial Advice

The insurance industry is a complex one that’s difficult for the average person to navigate. However, you don’t have to navigate it alone. If you’re unsure of whether or not you should consider converting your term life insurance policy to a whole life policy, consider getting in touch with a professional financial advisor or insurance agent.

Ultimately, choosing to make a change to your life insurance isn’t like choosing what you’re going to eat tonight. Changes to your life insurance policy have far-reaching financial implications. So, you should be confident in the changes you make. Sometimes that confidence only comes after you speak with a professional.

Conclusion

There are several factors to consider when you choose whether to convert your term life insurance policy to a whole life policy. In particular, you should carefully consider your financial goals, your current life insurance policy, changes to your health, whether or not you need a cash value component, and how your decision impacts your beneficiaries as you decide between your options.

Keep in mind that the decisions you make with your life insurance now can have far-reaching financial implications. So, if you’re not 100% confident that you’re making the right decision, it may be wise to seek professional assistance. Contact an agent at Fidelity Life at 1.866.853.3013 for help with your questions.