Should I Convert Term Insurance to Whole Life?

When choosing an insurance policy, most Canadians consider the premium cost, length of the contract, and policy benefits. Over time, policyholder goals and expectations can change. When this happens, we encourage policyholders to think about converting their term insurance to whole life insurance to better meet their needs.

Deciding whether you should convert term insurance to whole life insurance is an important decision and one you should contemplate carefully. Today we´ll clarify the difference between both insurance types, what you should consider when converting, reasons to convert, and how to do so.

What Is the Difference?

Term life insurance provides coverage over a limited number of years defined in the contract, while whole life insurance covers the policyholder until death. It´s important to note that you can convert a term policy into a whole life policy, but not vice versa.

Both life insurance policies have other differences, broken down below.

Term Life Insurance

Term life insurance is time-limited, which makes its premiums more affordable than whole life insurance. Premiums may increase with age or over time if contracts are renewed.

This policy type is a great choice for those who seek protection during vital financial times in their lives, such as while paying off a home or putting children through university.

Whole Life Insurance

Whole life insurance is a permanent type of insurance, as it is in effect throughout the policyholder´s life. Whole life premiums are typically more expensive than term life insurance premiums; however, they are fixed throughout the contract´s duration.

Whole life insurance also includes a savings component, providing cash value that the policyholder can borrow against or withdraw under certain circumstances. This whole life cash value accumulates on a tax-deferred basis.

What Should You Consider?

Canadians contemplating a switch from term to whole life insurance should consider the following aspects.

Cost: There are no fees to convert a term policy into a whole life policy; however, your premium will increase, meaning higher payments. Premiums are generally higher with whole life insurance, and your age will also be a factor.
Conversion amount: Another aspect affecting cost is how much of your policy you convert – you can choose between the full value or a portion of it. For example, if you have a $400,000 term insurance policy, you could choose to convert only $200,000 of it into whole life insurance, leaving the remaining half in the original term policy.
Policy conversion rates: Some insurers give policyholders a credit for the amount they´ve paid towards their term life insurance. This credit goes towards their new whole life policy. Not all providers offer this option, but be sure to ask insurance agent Sim Gakhar to see if you are eligible to save some money through this option.

Reasons to Convert Your Term Insurance Policy

It´s safe to say that, when you initially chose your life insurance policy, you chose term insurance for a reason. Many clients go with term insurance because they are looking for coverage over a set amount of time with lower premiums.

Few people are not informed about the differences between permanent life insurance and term life insurance from the get-go. If this information slipped through the cracks and you are only now finding out about whole life insurance, then this may be a reason to convert.

If you were aware of permanent insurance but time has passed since you last thought about it, you may have undergone some life changes that will prompt you to consider converting to a whole term insurance plan today.

A change in health: If your health has changed for the worse, converting your term insurance to whole life may be a way to get permanent insurance without subjecting yourself to an entirely new policy or another physical exam. This means you can access permanent insurance without it being affected by your health or insurability. In this case, the alternative of starting a whole new policy would be extremely expensive or generally impossible.
A need for cash value: Many policyholders enjoy their permanent life insurance´s cash value component. Whole life insurance takes a portion of your premiums and puts it towards building cash value. Some policyholders can take advantage of this cash during retirement, tax-free. Others can borrow against the cash value during financial urgencies.
An increased budget: Over time, your income may have increased, allowing you the new opportunity to invest in whole life insurance. If permanent life insurance fits better into your budget now than before, it may be time to convert.

How to Convert Your Term Insurance to Whole Life

Most Canadian term insurance policies allow for conversion to whole life policies. Many policies will not require you to take a new medical exam when converting.

The conversion process is often easier than signing up for a whole new policy, and we´ve laid out the steps on how to do it here.

1. Confirm Your Policy Is Transferable

While most policies include a clause around conversions, you´ll need to confirm that your term policy is transferable into a whole life policy. Read through your contract or contact insurance professional Sim Gakhar today, and she will gladly assist you in analyzing your current contract.

2. Check the Term Conversion Period

The term conversion period refers to the time frame when your term policy is eligible for conversion to whole life insurance. While some policies may allow conversion at any time, others may restrict conversion periods. One example would be a 20-year policy that only allows conversion during the first 10 years.

3. Contact Your Insurance Agent

If your policy is transferable and you´re within the conversion period, you would next call your insurance agent or Sim Gakhar to formally request the conversion.

4. Complete the Documentation

An insurance specialist like Sim Gakhar will next send you a questionnaire to fill in a few details, and within a few days, you´ll soon receive the new permanent policy.

Do You Have Additional Questions?

Navigating insurance policies can be tricky, but under the guidance of insurance professional Sim Gakhar, you know you´ll be in good hands. Reach out to her with any additional questions you may have about converting your term insurance policy, and she will be happy to help in any way she can.

FAQs & Helpful Resources Regarding Whole Life Insurance

Other Types of Life Insurance Products You May Want To Check Out

When To Get Covered

When it comes to life insurance there really is no time that is too soon to get covered. And, this is because the younger you are, the cheaper those premiums are going to be. Not only this, but you are probably healthy right now.

If you wait until something bad happens, you will not only without a doubt face higher premiums, but you might not even be able to get covered at all.