Life Insurance: Term Conversions

Your insurance policy needs to reflect the changes in your life. It might be time for you to consider a term conversion with your life insurance policy.

A term life insurance policy can be a low-cost solution for a temporary financial safety net. The death benefit supports your family through a period when student debt, loans and the costs of raising children may represent a crippling financial burden of an unexpected death.

Term insurance provides coverage for a specific period, and typically offers a death benefit only. These policies cover you for a specific period of time. When it expires there is no payout, and it loses all its value. However, as time passes, your financial picture might change. Then you might want to consider a term conversion into a permanent life insurance policy.

A permanent life insurance policy offers larger benefits, such as the ability to build stable cash value and leave a legacy. Rather than buying a completely new policy, its possible to use a term conversion to move from term insurance to a permanent policy.

A term conversion lets you convert some or all of your current coverage into a permanent policy during a specified time frame. When converting a term policy to a permanent policy, the policyholder typically has the option to choose from different types of permanent
insurance available from the insurance company. A term conversion can be a more simple process than buying a new policy because you might not have to undergo another health examination. For instance, if you were healthy when you bought the term policy, the permanent insurance policy will be priced as though you are just as healthy, even if you are not.1

It’s important to note that there may be certain limitations or conditions associated with the term conversion feature, such as a conversion deadline, a maximum age limit for conversion, or restrictions on the available permanent policy options. Therefore, it’s crucial to review the terms and conditions of your specific insurance policy to understand the details and options available for conversion.

Why would you convert to a permanent policy?

There are several reasons why you might choose to convert from a term life insurance policy to a permanent life insurance policy.

Lifelong Coverage: Term life insurance provides coverage for a specific period, such as 10, 20, or 30 years. Once the term expires, the policyholder no longer has coverage unless they renew the policy, which can become expensive as they get older. By converting to a permanent life insurance policy, the policyholder ensures coverage for their entire lifetime, as long as premiums are paid.

Changing Insurance Needs: Over time, a person’s insurance needs may change. While term life insurance is often purchased to cover temporary financial obligations, such as a mortgage or children’s education, there may come a point where permanent coverage is desired. For example, if a policyholder wants to leave a financial legacy for their beneficiaries, cover final expenses, or provide for estate planning purposes, a permanent policy can offer these benefits.

Health Changes: As individuals age, they may experience changes in health, and it becomes increasingly difficult to obtain life insurance at an affordable rate or even get approved for coverage. By converting a term policy to a permanent policy, the policyholder can secure coverage without the need for a medical examination or providing evidence of insurability.

Cash Value Accumulation: Permanent life insurance policies, such as whole life or universal life, include a cash value component. Over time, the policy builds up cash value, which can be accessed or borrowed against while the policy is in force. This cash value growth can provide additional financial flexibility and potential for wealth accumulation, which is not available with term insurance.

Estate Planning and Tax Benefits: Permanent life insurance policies can play a role in estate planning strategies, helping to provide liquidity to cover estate taxes, ensuring an inheritance for beneficiaries, or equalizing inheritances among family members. Additionally, the death benefit from life insurance policies is generally income tax-free, which can be advantageous in certain estate planning scenarios.

Going through a term conversion does not need to be a difficult process. Discuss with your financial advisor on whether switching policies is the best option for you, and how you can start the process.

1., January 27, 2023.

Investment Advisory Services offered through Trek Financial LLC., an (SEC) Registered Investment Advisor.

Information presented is for educational purposes only. It should not be considered specific investment advice, does not take into consideration your specific situation, and does not intend to make an offer or solicitation for the sale or purchase of any securities or investment strategies. Investments involve risk and are not guaranteed, and past performance is no guarantee of future results. For specific tax advice on any strategy, consult with a qualified tax professional before implementing any strategy discussed herein. Trek 23-580

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