Converting term life to permanent life insurance- Ask The Hammer: Should you convert your term life insurance to permanent life insurance? In this episode of Ask The Hammer, Jeffrey Levine – aka The Hammer – describes scenarios where converting your term life insurance policy to a permanent life insurance policy might be the best option.
Converting a term life insurance policy to a permanent life insurance policy can have both advantages and disadvantages. Here are some pros and cons of converting term life to permanent life insurance:
Pros:
- Permanent Coverage: One of the main benefits of converting term life insurance to permanent life insurance is that it provides coverage for your entire life, as long as premiums are paid. This can be particularly beneficial if you anticipate needing coverage beyond the initial term of your term life policy.
- Cash Value Accumulation: Permanent life insurance policies, such as whole life or universal life, typically accumulate cash value over time. This cash value can be accessed through policy loans or withdrawals for various purposes, such as supplementing retirement income or covering unexpected expenses.
- No Need to Re-Qualify: When you convert a term life policy to a permanent policy, you generally don’t need to undergo a new medical exam or provide updated health information. This can be advantageous if your health has deteriorated since you purchased the term policy, as it ensures that you can maintain coverage without facing higher premiums or potential denial of coverage.
- Estate Planning Benefits: Permanent life insurance can be used as part of an estate planning strategy to provide liquidity for estate taxes, equalize inheritances among heirs, or leave a legacy for future generations.
Cons:
- Higher Premiums: Permanent life insurance typically comes with significantly higher premiums compared to term life insurance. If you convert your term policy to a permanent policy, you may end up paying much more in premiums over the long term.
- Complexity: Permanent life insurance policies, especially universal life policies, can be complex financial products with features such as variable premiums, adjustable death benefits, and investment options. Managing these policies effectively requires a good understanding of how they work and ongoing monitoring to ensure they meet your needs.
- Opportunity Cost: The premiums paid for permanent life insurance policies contribute to the cash value accumulation but may have been invested elsewhere for potentially higher returns. Therefore, converting to permanent life insurance may involve sacrificing potential investment gains in exchange for the security of a guaranteed death benefit and cash value accumulation.
- Limited Flexibility: Once you convert a term policy to a permanent policy, you typically cannot revert to term insurance or make significant changes to the policy structure without potential financial consequences or underwriting requirements.
Before converting a term life insurance policy to permanent life insurance, it’s essential to carefully weigh these pros and cons and consider your financial goals, budget, and insurance needs both now and in the future. Consulting with a financial advisor or insurance professional can help you make an informed decision based on your specific circumstances.
Watch more episodes of Ask The Hammer at this link: https://www.finstream.tv/videos/ask-the-hammer/