Converting term after your health changes: a walkthrough

Say a hypothetical policyholder, Marcus, is 49 and has a 20-year, $500,000 term policy he bought at 35. In year 14 a routine test finds a heart condition. He is still working and his teenage daughter still depends on his income, but he suspects that a new policy would be priced out of reach or declined outright. His term policy ends in six years. He has one good tool left: the right to convert it to permanent coverage without answering a single new health question.

This post walks through using that right from the first phone call to the day the new policy arrives. It is written for the moment when you may not be insurable on ordinary terms, but the steps apply to anyone converting. Marcus and every figure below are illustrations, not real prices.

What the right is, and why a diagnosis does not cancel it

A term conversion is an exchange. You give up some or all of the term coverage and the insurer issues a permanent policy on the same life. Because the conversion privilege is written into your contract, the insurer cannot ask for evidence of insurability. It does not review your medical records, order an exam or ask whether anything has changed. That is the entire value of the right: the contract was underwritten when you were healthy, and the right preserves that result.

The broader explanation of how the privilege works is in converting term life to permanent: how the conversion option works. This walkthrough is about doing it under pressure.

Three facts to hold onto before you start:

• The right is only as good as the contract. The deadline, the list of eligible products and the price basis all come from your own policy or rider.
• The right belongs to the owner of the policy. If someone else owns it, such as a trust or a business, they must act.
• Time matters. A policy in its final years may have a conversion window that has already closed, even though the term still has years to run.

Step 1: Find the policy and read the conversion language

Locate the full contract, not the summary page. If you only have the declarations page, ask the insurer for a complete copy of the policy and any riders. In the contract, look for headings such as "Conversion," "Right to Convert," or "Conversion Privilege," and check riders as well, since some policies add conversion as a rider.

Write down these items from the text:

1. The last date you may convert, expressed either as a calendar date, a policy anniversary or an attained age.
2. Whether the date is earlier than the end of the term. Policies commonly shorten the window, so a 20-year policy might stop allowing conversion several years before year 20. Marcus finds that his window closes at the end of year 15, so he has roughly a year left.
3. The list of products you may convert to.
4. The minimum amount you may convert.
5. Whether you may convert part of the policy.
6. How the new premium is determined, usually by your attained age and a rate class.

Expect the contract to use formal language. If a sentence is unclear, mark it and ask in writing in step 3.

What to expect: twenty minutes of careful reading. It is the most important twenty minutes in the process, because everything after this depends on the deadline.

Step 2: Mark the deadline and protect the term policy

Put the conversion deadline on a calendar with reminders at 90, 60 and 30 days. Many conversions take weeks from request to issue, and the insurer may require that the conversion be requested, or even completed, by the deadline. The contract wording decides which, so ask in step 3.

Keep paying the term premium. The term policy is what holds your conversion right, and a lapse can end it. If the premium is overdue, look at the grace period in your contract, discussed in life insurance grace periods and lapses, and pay promptly. If you have already missed the window, the guide on what happens when your term life policy expires covers what is left, including renewal and new coverage.

What to expect: the term policy continues unchanged until the conversion is issued. Do not cancel it.

Step 3: Contact the insurer in writing and ask for conversion options

Use the insurer's service line to start, but follow up in writing, by email or a secure message, so you have a record. Ask for:

• A written confirmation of your conversion deadline and what counts as meeting it.
• A list of the permanent products available for conversion, with illustrations for each at your age and current rate class.
• Whether you may convert part of the face amount, and the minimum.
• Which rate class the new policy would carry. Many contracts convert at the class on the original term policy; some use a different basis.
• Which riders on the term policy continue, and which do not.
• Whether the new policy has its own two-year contestability period and suicide clause, or whether time under the term policy counts.

You may be asked to state that you want to convert. You are not asked to explain why. The reason, whether it is a diagnosis or a change in plans, does not matter to the contract.

What to send: the policy number, your identification and a signed request if they need one. Do not include medical records. They are not needed.

What to expect: an illustration packet or a call from a conversion or policy-service department. Some insurers route this through your agent. If you do not have one, ask the home office directly.

Step 4: Choose the permanent product

This is the decision with the most consequences. The product the insurer offers will usually be a whole life insurance policy, and sometimes also a universal life policy, which might include a no-lapse guarantee such as the one described in guaranteed universal life: permanent coverage without the cash. The difference matters.

Neither product is better in the abstract. A person who wants to leave a death benefit and has no use for cash value may prefer the lower premium. A person who values the cash accumulation and a premium that never changes may prefer whole life. If you are weighing the types from scratch, term vs whole life insurance: which fits you sets out the trade-offs. The guide to permanent life insurance describes the family of products.

Ask the insurer to put the illustration in writing and read the assumptions. An illustration may show projected values that are not guaranteed. The guaranteed column is the one to trust for planning.

What to expect: several products on offer, or only one. If your contract lists only one, the choice is simple.

Step 5: Price the conversion and decide how much to convert

The new premium follows your age on the conversion date, the attained age. At 49, the permanent premium for a given face amount is far above what you were paying for term at 35. For a feel of the numbers, take these hypothetical figures:

• Marcus pays $45 a month for the $500,000 term policy.
• The illustration for converting the full $500,000 to a permanent policy shows $1,150 a month. That is $2.30 a month per $1,000 of benefit ($1,150 divided by 500).
• A lower-cost guaranteed option shows $620 a month for the full amount, or $1.24 per $1,000.

The full-conversion premium of $1,150 a month is $13,800 a year (1,150 x 12), more than 25 times his term premium. This is typical in kind, if not in the exact figures. Per dollar of benefit, permanent coverage costs a multiple of term.

Marcus can afford $400 a month. At $2.30 per $1,000, $400 buys about $173,900 of benefit (400 divided by 2.30 is about 173.9 thousand). He rounds down to $170,000, which costs 170 x 2.30 = $391 a month. If his contract allows, the remaining $330,000 of term continues. A term premium scaled in proportion would be about $29.70 a month (45 x 330 / 500), and his total monthly outlay is roughly $391 + $29.70 = $420.70. In reality the remaining term premium is whatever the contract specifies, so ask for it.

Marcus's alternative is to choose the lower-cost guaranteed option. At $1.24 per $1,000, his $400 would buy about $322,500 of benefit, and he could convert $320,000 for 320 x 1.24 = $396.80 a month, leaving $180,000 of term.

Notice that no number here is "right." The blog post on partial or full term conversion: splitting the face amount sets out criteria for splitting the face amount. The key is to size the permanent piece to something you can pay for the rest of your life, since a permanent policy that lapses defeats the purpose.

What to expect: a lower amount than you wish you could keep. Most people who convert after a health change convert part of the policy, because the full amount costs too much.

Step 6: Check what the conversion does not carry over

A conversion is a new contract, and not everything attached to the old one comes along.

Review these in the illustration and the conversion forms:

• Riders. A waiver of premium rider or a child rider on the term policy may not be available on the permanent policy, or may require evidence of insurability to add. Ask which riders carry over at no underwriting.
• Contestability and suicide clauses. The incontestability clause period on the new policy may restart, or it may credit time already served. The answer is in the contract. See the two-year contestability period for how these clocks work.
• Credits. A few contracts give a credit toward the first permanent premium based on term premiums paid. Ask rather than assume.
• Taxes. A conversion is generally not a taxable event, and death benefits are generally income-tax-free to a named beneficiary, as the facts in the main conversion guide note. For your own situation, ask a tax professional.

What to expect: some surprises on riders, and a clear answer on the clocks if you ask in writing.

Step 7: Complete the forms, and understand what is waived

The conversion paperwork asks for the usual administrative details: owner, insured, beneficiary designations, payment method and signatures. It does not ask for medical history. In most conversions, no exam is scheduled and no records are ordered.

Two cautions:

• If you add something that was not on the original policy, such as a larger amount than you held or a new rider, the insurer may treat that part as a new application with underwriting. Keep the request within what the conversion right covers.
• Answer any question that does appear accurately. A conversion form that asks about something unrelated to health, for example identity, residence or intended use of the coverage, still needs honest answers.

Review the beneficiaries while you have the form in front of you. A diagnosis is often the moment a family reconsiders who should be named, and the new policy is a clean place to do it.

What to send: the signed conversion application, the first premium if due, and any changes to ownership or beneficiaries.

What to expect: a confirmation of receipt, then a period of processing.

Step 8: Keep the term in force until the new policy is issued

Do not stop paying the term premium until you have the new policy in hand and the insurer confirms the conversion is complete and the term coverage amount has been reduced or ended. If the conversion is partial, the term policy continues for the remainder.

Check the effective date. Some conversions are effective on a date you choose within a limit, and some on the date the insurer processes them. If the date matters for the deadline, ask the insurer to confirm in writing that the request was received on time. In the gap between your request and the new policy, your term coverage is your protection.

What to expect: days to weeks, depending on the insurer. A policy package follows with the contract and a free-look period, a short window in which you can review the policy and, in many cases, return it for a refund of premium. After a conversion, ask whether the free-look right applies, because it may differ from a new sale.

Step 9: Audit the result after the policy arrives

When the new contract arrives, read it as if you were buying it.

1. Confirm the face amount, the premium, the rate class and the effective date match the illustration.
2. Confirm the owner and beneficiary names are spelled and designated as you intended.
3. Confirm any riders you expected and the absence of any you declined.
4. Note the new policy's contestability and suicide clause dates in your calendar.
5. Store the policy where your beneficiary can find it, and tell them where it is.

If anything does not match, notify the insurer in writing during the free-look period. If a dispute follows, the state insurance department accepts complaints and can explain your rights, which vary by state.

What to do if the window is already closed

If your conversion window has ended, you have fewer tools, but not none. You can ask the insurer whether it will make an exception, which some do not. You can renew the term, if the contract allows it, at a much higher price. You can apply for new coverage, accepting that a recent diagnosis will affect the result, or look at products with simplified or no medical questions, which carry their own limits and prices. The guide on what happens when your term life policy expires covers the end of term options, and mistakes people make when converting term to permanent lists the errors that cost people their window.

Key takeaways

• A conversion needs no health questions, so a new diagnosis does not change your right; the deadline in your contract is what matters.
• The conversion window often closes before the term ends, so read the contract for the real date and confirm it in writing.
• Permanent coverage costs many times the term premium per dollar of benefit, which is why many people convert only part of the face amount.
• Riders, contestability clocks and credits do not always carry over, so ask in writing before you convert.
• Keep paying the term premium until the new policy is issued, and audit the contract when it arrives.