How to Convert Term Insurance to Permanent Insurance

Virtually all individually owned term (temporary) life insurance policies allow you to convert some or all of the coverage to a permanent plan. Keep in mind that premium payments for permanent life insurance generally are many times greater than term premiums.

Difficulty: Moderately Easy

Instructions

Things You'll Need:

• Safe-deposit Boxes
• Calculators
• Accountants
• File Folders
• Fireproof File Cabinets
• Fireproof Safes
• Personal Financial Software
• Calculators

Determining the Value of Conversion

1. Decide if your beneficiary(ies) will be financially impacted by your death, no matter how long you live.

2. Write down the total amount of death benefit from all term life insurance policies that you currently own, but do not include it in the next three steps.

3. Roughly estimate any debt in your financial or retirement planning that is never likely to be paid off, such as a home mortgage.

4. Consider the likelihood that, given your own or your parent's medical history, you may incur large medical bills near the end of your life.

5. Add to those estimates the cost of final expenses, such as funeral, burial plot, and administrative settlement of your estate.

6. Against those three approximate amounts, calculate how much your surviving spouse and/or children would have to live on after your death.

7. If the amount in #6 far exceeds the sum of #3, #4, and #5, you probably don't need the death benefit you wrote down in step #2, and it can be allowed to lapse when you feel it is no longer needed.

8. If the sum of #3, #4, and #5 is much greater than the dollar amount in #6, consider covering the shortfall by converting some or all of your term insurance to permanent insurance.

Making the Conversion from "Term to Perm"

9. Consult with the same agent from whom you bought your term policy, or call the home office of the company that issued the term policy for the name of a local agent.

10. Review the features of whatever permanent plans are allowed under the conversion section of your term policy.

11. Decide which plan will provide you with the best benefits at the lowest cost.

12. Sign the appropriate paperwork for the conversion, making sure you get a copy.

13. When the new policy arrives, read it over carefully to make sure it was issued according to your instructions.

14. Make a copy of the policy and place it in a secure location (such as a safe deposit box), but keep the original with other important papers at home.

Tips & Warnings

• If you only converted part of your term policy to a permanent contract, you can keep the remainder of the term coverage in force by having the insurance company issue a new term policy with the lower face amount and paying the premiums until the end of the term.
• Until your new policy arrives, keep paying premiums on your old term policy in full and on time (any overpayments will be credited or refunded).
• This is a good time to make any beneficiary changes that are necessary.
• Promptly return any policy that is issued with mistakes or incomplete information so that a new, correct policy may be issued.
• Life insurance policies are legal contracts and should be treated with the same attention and care you would give to other important family documents.
• It is generally not a good idea to put original life policies in a bank safe deposit box as it may not be immediately accessible at your death.
• Resist attempts by any insurance agent to sell you more life insurance than you need by being firm about the dollar amount of coverage you want.

[k1esfl]

on 5/16/2008 You won't gain anything by staying with your current insurer. Get some quotes for different providers. If you've got the face value in saving (investments or savings account), you won't need to pay a company for premiums; you're already self-insured.

[julieL]

on 3/21/2008 if my term ins is at its 10 year end and can be renewed for 5 more year, or I can convert at my option, should the conversion be a quote from the current insurance company or the company thats taking over my new 5 year term if I agree?