5 Reasons to Convert Term to Whole Life Insurance

Switching from term to permanent life insurance allows you to build savings and can help with estate planning.
By NerdWallet 
Edited by Katia Iervasi Reviewed by Tony Steuer

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Term life insurance provides temporary coverage, which is all many families ever need.

You buy term life to cover you for a specific period, such as 10, 20 or 30 years, and your beneficiary gets a payout if you die within that time frame. Ideally, by the time the coverage expires, you don’t need life insurance anymore. Your kids have grown up, your debts have been repaid, and you have plenty of savings.

But what if your needs change?

Most term life insurance policies are convertible. That means you can upgrade some or all of your coverage to a permanent policy, such as whole life insurance, universal life insurance or variable life insurance. With most insurers, you can typically convert without taking another medical exam or answering health questions, as long as you do so within a certain time frame or by a certain age, such as 75.

The deadline for converting and the type of permanent policies available depend on the life insurance company.

Why go from term life to permanent life

Here are reasons you might convert your term policy to a permanent one.

Build savings

Part of the premium for permanent life insurance goes towards building up cash value, which grows slowly on a tax-deferred basis. You can borrow against or withdraw money from the cash value life insurance once you’ve accumulated enough. You can even give up the life insurance altogether for any existing cash surrender value. To compare, term life insurance has no cash value.

Good to know: Max out contributions to your tax-advantaged accounts and consider other investment vehicles before you buy permanent life insurance as a savings builder. Don’t buy permanent life insurance unless you can stick with it for the long haul and have a long-term insurance need. Generally, it takes many years for the cash value to build substantially, and you pay a surrender charge during the first few years of the policy. Known as the “surrender charge period,” this typically lasts 10-16 years.

Now you can afford it

You might have wanted some permanent insurance but balked at the price for universal or whole life. Now that you’re making more money, you’d like to buy some lifelong coverage.

Good to know: Convert only the amount of coverage you think you’ll need. You may not have to convert the entire term life policy.

Lifelong dependent

Perhaps your needs changed and now you have a lifelong financial dependent, such as a child with special needs. Permanent life insurance can help fund a trust for that person after you die.

Good to know: Work with financial professionals who specialize in helping clients with special needs children. A life insurance agent can help you calculate coverage needs and select the best policy, while an attorney can assist with setting up a special needs trust.

Estate planning

You made it big and have more money and property than you ever expected. The downside? Now you’re worried about the estate taxes your heirs will owe after your death. Permanent life insurance can help. Work with an estate planning attorney and insurance agent who specialize in this area. The estate planning attorney will help you set up an irrevocable life insurance trust. The insurance agent will help you plan and select the right policy.  It’s important to set this up correctly so that the death benefit is not subject to estate taxes. Your heirs can then use the life insurance proceeds to help pay the estate tax.  

Good to know: State estate taxes vary. Federal estate taxes in 2023 are applied to estates worth more than $25.84 million for a couple or $12.92 million for a single person

IRS. Estate Tax. Accessed Jan 27, 2023.
. (A spouse doesn’t owe estate taxes on an inheritance from the deceased spouse.) 

Health problems

The insurance company doesn’t consider your current health condition when you convert a term life policy. That’s a large advantage if you’ve developed conditions that would make a new permanent life policy too expensive.

Good to know: If you’re still healthy, get quotes for a new permanent policy and compare those with what you’d pay through conversion. Insurers may only offer one option for conversion, so it’s worth comparing a handful of companies to see if there are more competitive options available to you. 

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Life Insurance illustration of mother with young child

Shopping for term life insurance

Before buying a term life policy, follow these tips if you think you might want to convert it later on:

  • Make sure the term life policy is convertible.

  • Understand the deadline for converting.

  • Review the permanent life insurance policies that will be available if you convert.

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