Converting Term Life to Whole Life

(And how you can get started today)

Family with dog resting on a pier and looking at lake and foggy mountains. Converting your term life insurance to whole life insurance.

So you have a term life insurance policy. Maybe you bought it because of a debt that’s already been paid off, or maybe you’re just looking to safeguard your loved ones’ financial future after the term is scheduled to end. Lucky for you, converting a term life policy into a permanent whole life policy isn’t hard, and it can save you lots of money.

Our expert independent insurance agents are standing by to answer your questions and manage the hard parts for you, so you don’t get tangled up in red tape. Read on to learn if converting your term life insurance into whole life insurance is the right option for you.

How does life insurance work?

Before we get to the nitty-gritty of whole vs. term, let’s zoom out and talk about the basics of life insurance. When you buy life insurance, you’re agreeing to pay premiums (usually monthly, quarterly or annual payments) in exchange for a payout to your beneficiaries if you pass away while covered by the policy.

  • Whole life insurance averages those premiums out over your whole life, as the name implies. If you buy whole life insurance in your 20s, you’ll pay a very low rate because you have many years of expected life left in which to pay premiums. Whole life insurance lasts as long as you pay premiums.
  • Term life insurance on the other hand, averages premiums out over a term, like 10, 20 or 30 years. It’s usually more expensive than whole life insurance because the premiums need to be paid out over a shorter time. Term life insurance only lasts for that one term, though you may have the option to renew for another term at a favorable rate.
  • Life insurance benefit is the amount of money a life insurance company is agreeing to pay after your death. This is usually a nice even number, like $50,000 or $250,000.
  • Beneficiary is the person or organization (you may choose multiple beneficiaries) that will receive the life insurance benefit. You need to decide on a beneficiary or beneficiaries when you buy your policy, but you can change them over time. You’re not locked into the same beneficiary or beneficiaries for the entire policy.

All life insurance dramatically increases in cost the older you are. That’s why it’s a good idea to lock down life insurance while you’re young, especially in your 20s. But if you missed that boat, not to worry—there are still good life insurance options for you.


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Which is better, term life or whole life insurance?

The short answer, unsatisfying as it may be, is that neither is better. It all depends on what you want out of your life insurance.

Generally speaking, term life insurance is better for shorter-term needs. Examples of this include:

  • Mortgage payments (a term that lasts for the duration of your mortgage, e.g., 30 years)
  • Support for a child (a term that lasts as long as you want that support in place, e.g., 18 or 20 years)
  • Support for a spouse or other family members
  • Other major debt

Whole life insurance is better for long-term or permanent needs. This might include:

  • Funeral expenses
  • A one-time donation to a charity of your choice
  • Extra money for inheritances or a special commemorative activity for your beneficiaries

 Whole life insurance can also be converted into a lump sum when you decide you no longer need it, for example, in retirement. This makes whole life insurance an attractive investment option in addition to the benefits of the life insurance itself.

Why convert term life to whole life insurance?

Converting a term life insurance policy into a whole life insurance policy makes sense for a couple of reasons. One is if your needs have changed. Maybe your short-term needs have been met, but your long-term needs have increased. 

Another reason to convert term life to whole life—perhaps the most common—is to lock down cheaper life insurance rates as you approach middle age.

Why do life insurance rates go up over time?

Because life insurance costs are calculated based on how many years of expected life you have left. Since no one has lived forever, the older you get, the fewer years of expected life you have, and the riskier a bet you are for the insurance company. 

Buying term and whole life insurance in your 20s is very cheap, as long as you're healthy. You have a lot of years of expected life left. The risk of death is low, so the insurance company is less likely to need to pay out the benefit. They pass those savings onto you.

However, as you age, your risk of death goes up, and so do your premiums, especially for whole life insurance. Whole life insurance distributes the cost of life insurance over the rest of your expected lifespan. The shorter than expected lifespan is, the higher your premiums will be to make up for it. 

That's why starting from scratch and buying a whole life insurance policy can be prohibitively expensive once you reach your late 30s and 40s.

 That’s when converting term life to whole life insurance comes to the rescue. The insurance company takes the premiums you’ve already paid for your term life policy and uses them to discount your whole life policy. This gives you a better whole life insurance rate than you could get otherwise.

As you age, converting term life to whole life insurance won’t necessarily make buying life insurance cheap. But it does help bring it within reach.


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What about universal life insurance?

But wait - there’s more. Before you convert your term life insurance into whole life insurance, be sure to ask an independent insurance agent about whether a universal life insurance policy might be a better fit for you.

Universal life insurance is similar to whole life insurance in that there’s no term—it lasts as long as you want it. The difference is that it’s also an investment vehicle. 

Here are some of the benefits of universal life insurance:

  • The money you pay in premiums is invested at a guaranteed rate of return, often a better one than you could get from any other type of investment.
  • You can add extra money to the pot to grow your investment even more.
  • You may have the option to stop paying premiums if money's tight. Your premiums will be subtracted from the money you’ve already invested.
  • When you decide you no longer need life insurance (usually in retirement), you can cash in the policy for a lump sum or annuities.

You usually can’t convert a term life policy into a universal life policy. You’ll have to start fresh. But given the investment benefits of a universal life policy, it’s worth considering.

Converting term life to whole life may still end up being the best deal, but ask your independent insurance agent about a universal life policy, too. You can compare the cost and benefits of each option and decide which is the right fit for you.


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How to convert term life to whole life insurance

First, get an independent insurance agent on your side. These agents work for you, not any one insurance company. They can shop around to multiple life insurance companies to find you a variety of quotes so you can compare them and save.

If you purchased your term life insurance policy through an independent insurance agent, great! Contact them and let them know you’re thinking of converting. They’ll handle the hard part for you, juggling paperwork and customer service representatives so you don’t have to.

If you bought your life insurance on your own or through a proprietary agent, converting term life to whole life insurance still isn’t very hard. Just call customer service and complete any paperwork or other requirements they ask for. Read the conversion terms carefully: Some companies may require you to be under 65 years old in order to convert your policy.

If you get stuck or want to make a big change, like adding a universal life policy, our expert independent insurance agents are here to answer questions. They'll help you weigh the pros and cons of each option. 

Life insurance is too important to feel uncertain about—you want to make sure you know exactly what you’re getting and why you’re getting it. Our agents add a personal touch to what can be an overwhelming process.

Reading up on life insurance (including reading this article) is the first step toward finding the right life insurance for you. Whether it’s term, whole or something a little more exotic, we here at wish you good luck and happy shopping.

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