Converting term to permanent

What the right gives you

A convertible term policy includes a promise: at any point before a stated deadline, you can exchange the term coverage for a permanent policy from that insurer, and they will not ask a single question about your health.

That is the whole thing, and it is more valuable than it sounds. Someone who bought a 20-year term at 40 in perfect health, and was diagnosed with something serious at 52, cannot buy new life insurance on ordinary terms. What they can do is convert, and the insurer has to accept it.

Your health class from the original application carries forward. If you were issued at standard rates in 2018, the permanent policy is priced off standard rates, regardless of what has happened since. If you were rated at the time, that rating usually carries across too.

What it does not give you

The premium is based on your age at conversion, not the age you originally bought at. Converting at 55 means paying permanent rates for a 55-year-old. Permanent coverage costs several times what term costs, so the increase is significant.

You are also limited to the permanent products that insurer offers for conversion, which is usually a subset of their full range and does not include whatever is cheapest on the open market. You cannot convert into another company’s policy.

And conversion does not create coverage you never had. You can convert up to the amount you already hold, not more.

The deadline

This is the part that costs people the option.

The conversion right does not last for the whole term. It ends on a date in the contract, and the common patterns are:

• A fixed age, such as 65 or 70
• A set number of years before the term expires
• A set number of years after issue

Whichever comes first usually governs. The practical result is that someone holding a 30-year term bought at 45 may find the conversion right ended at 65, ten years before the policy does.

Nothing announces this. The policy keeps working, the premium keeps coming out, and the right quietly expires.

If you hold term coverage, find that date. It is in the contract, and if you cannot find it, the insurer will tell you if you ask.

Who should use it

Someone whose health has changed. The clearest case. If a new application would be difficult, converting is how you keep coverage without being assessed.

Someone who has discovered a permanent need. A cottage that will trigger a tax bill in the estate, a dependent adult child who will need support after you are gone, a business obligation that has no end date. Term coverage cannot solve any of those because it expires.

Someone approaching the end of a term who still needs coverage and does not want a rising renewal premium. Conversion produces a level premium for life. Renewal produces one that climbs every year. Over ten or fifteen more years, level usually wins.

Who should not

Someone in good health with no permanent need, converting because it was suggested. Permanent coverage costs considerably more, so a suggestion to convert deserves the same scrutiny as any other recommendation to spend more: what need does it meet that term did not?

If the need genuinely ends when the term does, letting the policy end is a legitimate outcome.

Converting part of it

You rarely have to convert everything.

A common approach for someone with $800,000 of term coverage approaching a deadline is to convert $150,000 to permanent, covering final expenses and an expected estate cost, and leave the rest as term to run out naturally. That keeps the permanent premium manageable while locking in lifetime coverage for the part of the need that genuinely lasts.

Insurers set their own minimums for a converted policy, so there is a floor, but partial conversion is normal and widely available.

What to do now

If you hold a term policy, three things:

Find the conversion deadline and write it down somewhere you will see it, not in the folder with the policy.

A year before that deadline, ask the insurer what permanent products are available to you on conversion and what each would cost at your age.

Then decide deliberately. Converting because it is the right answer is fine. Letting the right lapse because you decided you do not need it is also fine. Losing it because nobody looked at the date is the only bad outcome.