Learn and Plan | Ins and outs of term conversion
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Ins and outs of term conversion

Dec 21, 2021, 1:11:16 AM | Reading Time: 5 minutes

When you're young, a term life insurance policy might be all you need. It offers a low-cost way to build a support system that can help your loved ones get through a difficult period and continue their lives without financial burden when you're gone. However, as you get older and the level term period on your life insurance is set to expire, you may still want to help protect the financial future of your loved ones. Perhaps you still have dependents who rely on your income, or you’ve taken on new debt in recent years that you don’t want to leave to your family. Switching to permanent life insurance can help ensure that the legacy you leave is the one you envision.

Fortunately, to continue your coverage, you don't have to buy a completely new life insurance policy. Term conversion allows you to move from term insurance to a permanent policy. Check your policy to see if you have a conversion option.

What is a term conversion?

A term conversion is when you convert your term life insurance policy into a permanent life insurance policy. Most term policies will include a stipulation that allows you to convert some or all of your coverage into a permanent policy within a certain time frame.

What is permanent life insurance?

Permanent life insurance is the general term for life insurance policies that do not expire. Unlike term life insurance, which provides death benefit protection for a specific period of years, permanent life insurance can last for the insured’s lifetime, as long as premiums are paid subject to the terms of the policy. These policies may also offer the potential to build cash value. The cash value for permanent life insurance policies grows generally tax-deferred, which means you don’t pay taxes on any earnings as long as the policy remains active.1 Policyholders can access cash value for a variety of reasons, such as building a nest egg for retirement, boosting the death benefit, or to help supplement retirement income through a policy loan.2

Compared to term life insurance, permanent life insurance usually costs more in premiums but can offer:

  • No expiration date. You can keep it as long as you pay the premiums.
  • Potential cash value growth.

Why convert?

Converting your term policy to a permanent life insurance policy can offer a few advantages that may encourage you to consider this option. Some of those reasons include:

No underwriting3

A term conversion is often much easier than purchasing a brand new policy because the majority of insurance companies let you convert without requiring underwriting again. Underwriting is a process that gives insurers a clearer look at your health history and background when determining your premiums. No new underwriting means that if you have developed health issues between when you first bought your policy and now, they won’t affect your premiums. However, it’s important to note that although premiums won't be affected by changes in your health, they will still be affected by your age.

You can afford more coverage

If you’re making more money than you did when you first bought life insurance, your budget may allow you to upgrade your coverage at a higher premium through a permanent policy.

Final expense coverage

Your funeral can be costly. Converting to a permanent policy to continue death benefit protection can help your family pay for those final expenses.

How do I convert?

Converting your term life policy to a permanent policy is a fairly simple process. Your first step should be to talk to your agent. Policies can be complicated, so having him or her help you understand the detail may make the conversion process easier for you. Next, read over your policy to see if you have the option to convert. Once you confirm the option, determine the length of the conversion period. The time frame that companies will allow policyholders to convert varies. Some will allow it at any point during a policy term, but others will carry a conversion period limit.

After completing these steps, contact your insurance agent to discuss the conversion in more detail. A few things to consider:

Ask about your permanent policy options

Some companies limit the kinds of permanent policies you can convert your term policy into, so be sure to find out what permanent policies are available to you.

Ask about conversion costs

Most term policies can be converted free of charge, but this depends on the life insurance company. Your premium, however, may increase depending on different factors.

Ask about converting in stages

You may not need to convert your term policy all at once. You might have the option to do it in installments if that better meets your needs.

Finalizing the conversion

When you’ve discussed the term conversion with your agent and are satisfied with the new policy, you’re ready to make the change.


1. Neither Midland National Life Insurance Company nor its agents give legal or tax advice. Please consult with and rely on a qualified legal or tax advisor before entering into or paying additional premiums with respect to such arrangements. The tax-deferred feature of the universal life policy is not necessary for a tax-qualified plan. In such instances, your client should consider whether other features, such as the death benefit and optional riders make the policy appropriate for your needs. Before purchasing this policy, you should obtain competent tax advice both as to the tax treatment of the policy and the suitability of the product.

2. Policy loans from life insurance policies generally are not subject to income tax, provided the contract is not a Modified Endowment Contract (MEC), as defined by Section 7702A of the Internal Revenue Code. A policy loan or withdrawal from a life insurance policy that is a MEC is taxable upon receipt to the extent cash value of the contract exceeds premium paid. Distributions from MECs are subject to federal income tax to the extent of the gain in the policy and taxable distributions are subject to a 10% additional tax prior to age 59½, with certain exceptions. Policy loans and withdrawals will reduce cash value and death benefit. Policy loans are subject to interest charges. Consult with and rely on your tax advisor or attorney on your specific situation.

Life insurance policies have terms under which the policy may be continued in force or discontinued. Permanent life insurance requires monthly deductions to pay the policy’s charges and expenses, some of which will increase as the insured gets older. These deductions may reduce the cash value of the policy. Current cost of insurance rates and current interest rates are not guaranteed. Therefore, the planned periodic premium may not be sufficient to carry the contract to maturity. For costs and complete details, refer to the policy or call or write Midland National Life Insurance Company, Administrative Office, One Sammons Plaza, Sioux Falls, SD 57193. Telephone 800-923-3223.

3 Subject to the terms of the new policy

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