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Ask the Life Insurance Expert

I bought a term life insurance policy 25 years ago. Should I convert it to whole life?

First, check whether you still can convert the policy to permanent life insurance. Most, but not all, term life policies let you convert them to permanent insurance. But even if your policy allows conversion, it might be too late.

Many policies have a deadline. If you pass the deadline, you can't convert. You must then purchase a new policy if you want permanent insurance.

Check the policy or call your life insurance agent or company to get details.

Next, if conversion is still an option, consider your situation and weigh the pros and cons. Do you need permanent life insurance? Most people purchase term life to replace income they otherwise would have earned to support their families. They purchase the policy to cover the years when their children are growing up and their household has a mortgage and other debts to pay off. Proceeds from a term life insurance policy can help pay for long-term expenses, such as college tuition for the kids, as well as day-to-day living expenses.

Your insurance needs have changed in 25 years. Who would suffer financially if you died tomorrow, or in five years or 10 years? How much money would they need and for how many years?

Remember that premiums will be much higher after conversion. Permanent life insurance, such as whole life, covers your entire lifetime and includes a cash value account. You can borrow against the cash value, although the death benefit is reduced if you fail to repay the loan. Permanent life insurance is a good idea if you want to provide for loved ones no matter when you die or you have a large estate to protect. Beneficiaries can use the proceeds to pay estate taxes.

Not everyone needs permanent life insurance, though, so weigh this question carefully.

If you decide you need permanent insurance, check what your options are through the term life conversion feature. The options will depend on the insurance company that provided the term life policy.

Why not just buy a new insurance policy? That's something to consider, but conversion might be the way to go if you need insurance and your health has deteriorated, making it difficult to qualify for decent life insurance quotes. Conversion generally allows you to switch the policy to permanent life insurance without undergoing a medical exam.

Talk to a life insurance agent you trust to get advice before you do anything. A good agent can help you assess your financial needs and steer you to the products best suited for your situation.

For more, see "How to convert a term life policy to permanent life insurance."

Last updated: Dec. 29, 2011