Converting Term Life to Permanent Life
The conversion from term to permanent life is straightforward for your insurer to process. But there are some consequences to understand before you proceed — even if you plan on selling the converted policy right away.  It is possible you’ll decide not to sell for some reason. Plan for that scenario by being comfortable with your new insurance terms and premiums.  How permanent life is different  Permanent life has no expiration date. That’s the distinction that makes permanent life sellable vs. a nonconvertible term life policy. Potential buyers of life insurance do not want policies that expire.  Permanent life additionally has the cash-value savings component that term life does not. Here’s how it works. A portion of each premium payment goes into your policy’s cash-value account. The balance grows over time based on the policy’s terms, which usually involves one of the following: Fixed interest rate  Variable interest rate with a guaranteed minimum  Interest rate tied to the stock market  Growth based on performance of investment funds  Note that your insurer may limit your conversion to certain types of permanent insurance. As a result, you may not have all these options for your cash-value account.   What you will have (if you converted and chose not to sell the insurance) is a cash-value account that produces tax-deferred earnings. As that balance rises, you can borrow against those funds or, possibly, withdraw them.  Or, if you later decide you don’t need the insurance, you can cash it out in a surrender or sell it in a life settlement.  Higher premiums  The premiums on permanent life insurance are usually 10 or 15 times higher than term life premiums. In other words, if you convert your entire term policy into permanent life with the same death benefit, your premiums will rise significantly.    Even so, the cost of your converted policy may still be less than the cost of buying new permanent life coverage. This is because the insurer prices your converted coverage using your original health status from when you bought your term policy. That works in your favor if your health has deteriorated since then.  Policy size  Your insurer may give you the option to convert part of your term insurance. You’d go that route if you want to sell some life insurance, but also keep a smaller death benefit for yourself.  Say you have $300,000 in term life coverage. You could opt to keep $100,000 in term, for example, and convert $200,000 into a permanent policy.