Why You Should Not Convert Your Term Insurance To Whole Life Insurance

Some insurance carriers allow the transfer of term insurance to whole life insurance, but only if your policy notes this flexibility at issuance. You may only have a limited time to make the transition, and in many circumstances, you will not have to take another medical exam.

Whole life insurance is usually more expensive than term life insurance because it has both life cover and savings, so your premium will be higher. Also, for the same premium, your coverage would be much lower. Remember that the idea of insurance is to give your family protection in the event of your demise, and the thumb rule for an appropriate cover is 10 times that of one’s income.

Whether it would be worth it depends on your situation. If your situation has changed from protection only to combination protection, and you want to receive a nominal return for lifelong coverage, it has intrinsic value. “But if you're simply looking for the most cost-effective means to protect your family, insurance, combined with independent investments, frequently proves better value,” says Kunal Varma, Founder and CEO, Freo. So, term insurance is always a better option. In fact, the first option is unlikely to suit you, and whole life insurance is never a good idea. 

“Mixing insurance and investment is mostly discouraged because these financial tools serve fundamentally different purposes. When you mix the two, you often end up with results that don’t fully meet either need effectively,” says Narendra Bharindwal, president, IBAI. 

Even then, if you plan to convert, here are a few things you should ask yourself. 

Start by looking at your capability for conversion. “First, are you allowed to convert? Then, how long do you have? Secondly, what will your premium look like? What key benefits will you lose/ gain with the new policy? Then are there any medical or administrative hoops to jump through?” says Varma. 

Are you being shoehorned into this conversion? Your agent might ask you to convert your term insurance into whole life insurance, but you should not go with his or her advice. 

Be sure to consider all your options. Sometimes, starting fresh with a new policy or a separate investment might offer more flexibility and returns.