Life Insurance Coverage Changes
As life progresses and your circumstances evolve, you may start to question whether your current life insurance policy still meets your needs. If you currently hold a term life insurance policy but are contemplating a switch to permanent life insurance coverage, you might be wondering if such a transition is feasible. The good news is that making the change is indeed possible, but there are crucial factors to take into account before doing so.
Term Life Insurance vs. Permanent Life Insurance
Let’s begin by examining the fundamental distinctions between term life and permanent life insurance.
-
Term Life Insurance: Coverage for a specific duration, typically 10, 20, or 30 years. A death benefit is provided to beneficiaries if the policyholder passes away during the term. Once the term ends, the policy expires, and there is no coverage thereafter. Term life policies usually lack cash value.
-
Permanent Life Insurance: Lifetime coverage as long as premiums are paid. Along with a death benefit, these policies accumulate cash value over time. The cash value can be utilized for various purposes like borrowing against the policy or paying premiums.
Reasons to Switch to Permanent Life Insurance
There are several motivations for transitioning from term life to permanent life insurance:
-
Desire for Lifetime Coverage: If you have long-term financial commitments or dependents who will require support throughout your life, permanent life insurance might be more suitable.
-
Building Cash Value: Permanent policies accrue cash value, which can be utilized for expenses like education or retirement. Loans from permanent insurance policies typically have low borrowing rates due to the cash value serving as collateral.
-
Premium Lock: With permanent life insurance, premiums are usually fixed for life, offering stability and peace of mind for future financial planning.
Steps to Switch from Term Life to Permanent Life Insurance
If you’ve decided to transition to permanent life insurance, follow these steps:
-
Review Your Policy: Check if your existing term policy allows conversion to permanent life insurance without requiring a new medical exam.
-
Assess Your Coverage Needs: Evaluate your current and future financial requirements before making any changes.
-
Compare Policies: Research and compare different permanent life insurance options to find the most suitable one for your needs and budget.
-
Apply for a New Policy: If conversion is not possible or desired, apply for a new permanent policy, possibly involving a medical exam.
-
Cancel Existing Policy: Once the new policy is active, cancel the term life insurance policy or let it expire, ensuring no coverage gap.
Before making the switch, consider that permanent life insurance premiums are typically higher due to lifetime coverage and cash value accumulation. Consult with an insurance expert to evaluate the costs and benefits thoroughly, ensuring the premium aligns with your financial plan.
