When considering what to do when an Arizona term life insurance policy ends, several options may be available to the policyholder as previously discussed in Part 1 on this topic. These options are time sensitive so please read Part 1.
Converting a term life insurance policy to a Universal life insurance policy may be possible, assuming the term life insurance policy allows conversions and is within the conversion window. Universal and whole life insurance are similar, both offering upfront cash value, and both having a higher premium than term life insurance. Universal life typically offers greater premium payment flexibility than whole life.
Pros of converting from term life insurance to Universal life insurance include longer lasting coverage which helps when it comes to transferring wealth. Beneficiaries listed on the Universal life policy will receive a financial payout (death benefit) when the policyholder passes away. There is no expiration date as is the case with term life insurance. The cash value of a Univeral life policy earns interest. Estate planning is more accessible with Universal as opposed to term life policies.
Cons of converting from term life insurance to Universal life is that it costs more, cash value access can be cumbersome, interest earned on cash value is usually lower than other financial vehicles, and flexible premium payments do have limitations. Adding too little premium can affect the death benefit and adding too much can result in the IRS reclassifying the policy as a modified endowment contract (MEC) with different tax rules. Always speak with a licensed financial expert before adjusting premium payments.
Variable Universal Life is another option when considering coverage after an Arizona term life insurance policy ends. Similar to whole life and Universal life, variable universal life allows the policyholder to choose from a list of options where to invest the cash value. The upside is that the policyholder may make more money than with a typical Universal life policy. The downside of course is that they may make less. The pros and cons of variable Universal life are very similar to whole life and Universal life, with the added kicker that the policyholder of a variable universal life policy stands to gain or lose money thanks to the whims of the stock market.
There is usually no fee when converting a term life insurance policy to a permanent life insurance policy.