Converting a Term policy to a Whole life policy
MR. WATSON: So another possible option would be to convert from a Term policy to a Whole Life policy. Convert means change. We have a term policy, what are we converting to? Whole life.
MR. WATSON: Many term insurance policies automatically have an option to convert to whole life. This is called convertible term insurance. You can change from the term policy you bought to whole life. When you do this, you will not have to answer health questions, no evidence of insurability. The death benefit of the new whole life policy death benefit will be the same, or less (but not more) you had for the term insurance.
Attained Age vs Issue Age
MR. WATSON: Now, getting back to our sick guy, Lebanon, with the term policy, what happened to him? He's got "Political Incorrectness" disease and he's ill. He had a five-year term policy. Y'all remember?
STUDENTS: Yes.
MR. WATSON: He had it four-and-a-half years. He could renew it. Or he can convert it.
MR. WATSON: Here's the deal. You have a 30-year-old guy. $100,000 face amount. The premium for a term policy would cost him $200. For a whole life policy, it would cost him what? Cost him about $1000. Write this down:
- Age 30: Term- $200, Whole Life $1,000.
- Age 35: Term- $300, Whole Life $1,200.
MR. WATSON: So for a term policy, the premium would be $200. For a whole life policy, the premium would be $1,000.
MR. WATSON: At age 35, he has two options. He can renew the term policy and pay $300. But he says to himself, the premiums keep going up. I want to convert it to whole life. The premium would be $1,200, at age 35.
MR. WATSON: In other words, the premium for a whole life policy would be more for a 35-year-old man than the premium for a whole life policy would have been at 30 years old. The older you are, the higher the premium.
MR. WATSON: There are two ages that you can convert to:
- Issue age: original age.
- Attained age: the age you are now
MR. WATSON: If he converts to a whole life policy at attained age rates, age 35, his premium would be $1,200. If they allow him to convert back to issue age, then his premium would be lower, $1,000. Saving $200 a year. But if they allow him to do that he would have to pay the difference between what he was paying for the term insurance for the previous four-and-a-half years and what he should have been paying for the whole life during that time, plus interest.
MR. WATSON: There is generally a time limit for converting and that is usually 10 years or age 55, whichever is later.