Term Insurance: Time to Convert?

By: Rick Bouffard
Term insurance is typically purchased to protect a growing family from the catastrophic loss of a breadwinner. Lower initial premiums offer the flexibility to fit immediate needs. However, over time, a more permanent and valuable life insurance policy may be needed to provide security and more stable premium payments for the future.

The affordable cost / high benefit of term insurance is its most attractive feature. However, term insurance premiums typically continue to rise with age. Some term policies do offer premiums that remain level for a pre-determined number of years, but these policies may experience significant premium increases in the future, or death benefits that decrease yearly. A policy that has long-term value and benefits, and the flexibility to help cope with change, is important. Therefore, converting a term policy to a cash value policy may make sense.

Long-Term Benefits
A quality, cash value insurance policy provides the same death benefit protection as term insurance, while offering the opportunity for tax-deferred cash accumulation. Unlike term insurance premiums that increase with age, cash value insurance provides level premiums for the duration of the contract (although you must check with your insurer regarding premium payments over the life of any given policy).

Although cash value insurance initially costs more than term, the long-term savings could be quite substantial. The cash value buildup will continue to grow on a tax-deferred basis as long as the policy remains in force. By offering the flexibility to meet future needs and budgets, a cash value policy can help provide an excellent source of funding for retirement income, college expenses, or other financial needs.

The conversion privilege available in most term policies offers those who cannot initially afford cash value insurance a great opportunity to convert to a cash value contract at a later date. Some term policies may offer a conversion credit that makes converting to cash value insurance even more economical.

One particular advantage of converting from term rather than purchasing a new cash value policy is that there is no need for medical or financial requalification. Significant weight fluctuations and increased blood pressure are just a few symptoms of life in today's fast-paced society. Daily pressures and expectations, both at work and at home, can contribute to both health and financial problems. Converting a term policy to a cash value contract eliminates the need to undergo a new medical examination or provide updated financial information (as long as there are no increases in the amount of coverage, or any additional riders).

Making the Move
Converting your term insurance to cash value coverage may help provide maximum security and protection. You will be comfortable knowing your family will be provided for in the event of your untimely death. In addition, you will also feel a great sense of confidence in knowing your premiums are hard at work building tax-deferred cash values, which may be important in the years to come. While this approach may not be for everyone, it is always wise to review your insurance options on an ongoing basis so they remain consistent with your needs and goals.


Rick Bouffard is an insurance industry advisor and technologist who helped create one of the life insurance industry's first ELearning Centers at EFinancial.com. The EFinancial Learning Center contains hundreds of helpful articles and calculators to educate today's insurance shopper and help them make the best decisions for the financial health and future of their family

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