A term life insurance policy may be converted to a more permanent type of insurance, such as whole life or universal life. Universal life offers a higher interest rate that goes toward an accrued cash value of the policy when interest rates are high. (Accrued cash value is the worth of the policy during its lifetime. Some policies allow individuals to borrow against cash value for home improvements, medical bills, vacations or other needs. Those amounts are deducted from the policy's payout or must be paid back before the policy expires.) Whole life is also permanent and offers cash accrual, with fixed interest rates.
Step 1
Discuss your desire to convert your term life insurance policy into whole or universal life insurance with your insurance agent or the company from which you purchased your term life policy. (Any stipulations regarding deadlines for conversions or cutoff age or years on a term policy should have been discussed before purchasing the original policy.)
Step 2
Ask about the cost of converting your policy, as your premiums may rise. The amount of the increase will be determined by your age, health and the amount of your policy. Discuss death benefit payouts, as well as monthly premiums, both of which consumers may determine on a yearly basis in the event needs change.
Step 3
Decide whether you want to convert all or only some of your term life insurance coverage into a whole or universal plan. Whole life policy components, including death benefits, monthly premiums and cash value accrued remain the same for the duration of the contract. A universal life insurance policy offers individuals the opportunity to adjust death benefits and premium amounts on a yearly basis, and rising and falling interest rates mirror the actual interest rates of cash accrual.
Step 4
Discuss whether converting your term life policy will offer lower premiums for the first year. Many life insurance companies offer this. Also ask about the cash value of universal or whole life policies. In most cases, cash value starts to accrue only after the first year's premiums have been paid. Bankrate.com states that cash value is not accrued on term life policies and will not help build or create cash value.
Step 5
Make your decision, weighing the advice from your insurance agent. If you decide to convert the policy, your agent will be able to do so. You will have to sign your new policy before it goes into effect.
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