A Life Insurance and Annuities Resource

When Should You Upgrade Your Term Life Insurance Policy?

Written by Bill Bruce | Nov 22, 2023 5:30:00 PM

Frequently, we find ourselves in a position where there is an opportunity for change. What you thought was going to happen, and likely what you planned for, didn’t turn out exactly as you expected, and that’s okay! It’s good to take whatever opportunities come your way and see what happens next. 

If you have a term life insurance policy, you might find yourself in a position for an upgrade if your insurance provider allows policies to be converted. This is an excellent opportunity to snag the benefits of a whole life insurance policy that better suits your needs.  

The Difference Between Term and Whole Life Insurance

Life insurance policies are designed to keep your family financially protected in the event of your death. These contracts ensure that a sum of money, which is determined by the coverage amount you have, is given to the beneficiaries identified in your contract to keep them afloat when their financial situation changes. This coverage comes in the form of two main life insurance products: term life and whole life

Term life insurance is a policy that only provides coverage for a set period of time, which is typically 10, 20, or 30 years. These policies tend to have low premium payments as well as lower death benefits for beneficiaries. Many people choose to have term life insurance because they are relatively simple to apply for, easy to gain approval, and comparatively inexpensive to purchase. 

Alternatively, whole life insurance policies, also referred to as permanent life insurance policies, only terminate when the policyowner passes away or annuls the contract. To maintain this type of life insurance, it’s critical that the premiums are paid. 

Many people choose to utilize a whole life insurance policy rather than a term life policy because some of them provide cash value as a benefit. Dividends from participating life insurance policies allow for a little bit of a safety net when it comes to finances. While these dividends are not guaranteed, the money can be used to contribute to premium payments or support your financial goals, such as retirement savings. 

Term and whole life insurance policies each offer their own range of benefits. Term life insurance might be more fitting for someone with a tighter budget while a whole life insurance policy is suitable for someone trying to make contributions toward their long term goals. 

Even if a term life insurance policy makes sense based on your lifestyle and financial restrictions, it’s great to begin coverage sooner rather than later, especially with the knowledge that your policy may be eligible for an upgrade later on. 

Reasons to Upgrade Your Term Life Insurance Policy

Converting a term life insurance policy to a permanent one is not the right choice for everyone. Term life insurance can meet some of your short-term goals, but some people might be in a good spot to make the switch. Here are a few scenarios where upgrading your term life insurance policy can be beneficial. 

Health Changes

Maybe when you first purchased a term life insurance product, you were fairly healthy. However, changes in health are very common and they can warrant a shift in the amount of coverage you need. If your health is declining, but you still expect to outlast your term policy, it might be time to switch to a permanent life insurance product. 

Plus, upgrading your policy provides an opportunity to forgo the underwriting process, making the switch to permanent life insurance fairly smooth. Keep in mind that purchasing a new policy rather than converting might result in higher premiums since whole life insurance remains active for much longer than term policies.

Financial Status

An appealing feature of a term life insurance policy is their low premium. By committing to coverage for only ten or so years, you won’t need to pay as large of a premium in comparison to whole life insurance. This is great for people who might not be able to afford those larger policies. 

Just as your health changes over time, so can your finances. If you originally wanted whole life insurance but couldn’t afford the coverage, a change in your finances might allow you to finally make the switch to an upgraded policy. 

Long-Term Goals

Do you have a plan for the future? Maybe you’re thinking about retirement or how you can support your grandchildren through college. A permanent life insurance policy can have a cash value that you may use toward retirement or inheritance goals. 

Participating life insurance policies offer financial security by providing dividends that reflect the performance of the insurance provider. With this policy type, a portion of your premium payment is invested into a mutual fund. Dividends from participating life insurance policies are not guaranteed, but these payments can be received as cash and you can choose to use this money however you’d like. 

Many policyholders like to use this money to contribute to their premiums, hold onto for retirement needs, make large donations to organizations that are meaningful to them, or save it for an inheritance down the line. 

Final Expense Coverage

Term life insurance is great if you only need coverage for a limited amount of time. However, you might begin to think about what will happen to your family after you’ve passed. Converting your term life insurance to a whole life insurance policy can provide some benefits for end-of-life expenses, such as funeral costs or medical bills. 

Final expense insurance policies are a type of whole life insurance product that provides death benefits for after the policyholder has passed. These death benefits are intended to help cover the costs of some unexpected expenses that beneficiaries may take on, especially if the policyholder was the main provider for the family. 

Converting to a whole life insurance policy with death benefits can greatly reduce some of the anxiety you might be feeling regarding the financial stability of your loved ones after the life insurance coverage comes to an end. 

How to Convert Your Life Insurance Policy

Converting your term policy to a whole life insurance policy is often much more simple than applying for an entirely new set of coverage. A new application means additional fees as well as additional exams that are required for underwriting. Instead of this hassle, check with your insurance provider to see if you are able to switch your policy

Some insurance providers only allow policies to be converted during a given conversion period, and not just at any time. Taking a look at this deadline can help you determine if converting is the right option for you, especially if that deadline is approaching quickly. 

Additionally, when converting your policy, some coverage options stay relatively similar to your original policy. This can be more cost effective since your premium payments likely won’t be raised too high after the policy conversion, especially if you are still in good health. 

Before you can submit your application to convert your term life insurance policy, there are just a few items left to check off of your to-do list. Make sure you determine how much coverage you would like to receive with the policy upgrade, assign any beneficiaries, and determine payment options. To have a clear idea of your policy conversion options, it’s best to speak to your insurance agent. 

Upgrade Your Policy with ELCO Mutual

Still trying to determine which life insurance policy is best for you? ELCO Mutual provides a range of life insurance products to help our clients obtain the coverage that they need to live a long and healthy life while supporting their goals. 

The independent insurance agents from ELCO are ready to answer any and all questions you may have about converting a term life insurance policy to a permanent plan. To get started and learn more about the benefits of whole life insurance, contact the ELCO team today!