Permanent life insurance policies are intended to provide coverage for as long as you need it, while term life insurance policies are only valid for a specific period of time. While permanent life insurance plans provide more coverage, they also have much more expensive monthly premiums. If you are on a budget and you are getting older, you may be wondering if you can convert your permanent life insurance policy to a term policy, which would give you approximately the same coverage at a much cheaper price.

Difference Between Permanent and Term Life Insurance

permanent life insurance convert to term life insuranceBefore you try to convert your permanent life insurance to term life insurance, you need to understand the differences between the two. Term life insurance is the most affordable type of life insurance, and it only lasts for a specific period of time, usually 10 to 20 years, but it can be longer or shorter. The idea is that you purchase it later in life and renew if you end up living for a very long time.

On the other hand, permanent life insurance policies do not expire and do not need to be renewed. This is sometimes referred to as whole life insurance or universal life insurance. Both types of policies usually give you the option to save money as part of the policy’s cash value. Whole life insurance means that your savings grow at a much more structured rate with little risk involved, while with universal life insurance, your cash value is invested and can grow or lose money based on the market’s performance. Regardless of which type of policy you choose, they are both going to be more expensive than term life insurance.

How To Convert Permanent to Term

Unfortunately, converting your permanent life insurance to term life insurance isn’t the easiest thing to do. While many companies provide the option to up your coverage from term life to whole life, they tend to discourage lowering your coverage. Before you do anything, it’s important to talk to an insurance agent to learn more about your options, and then read through your current policy thoroughly. There could be consequences to breaking your current contract.

If you have cash value built up in your permanent life insurance policy, you may be able to use this to convert your policy into a term plan. This is usually referred to as an ‘extended-term’ option in your contract. Essentially, it will take the amount that you have built up and use it to pay the premiums on your life insurance, but only for a limited period of time. If this time period is long enough for your needs, then this is going to be the easiest solution.

If your main goal is to get rid of expensive premiums, you can look at ‘reduced paid-up’ options. This will essentially convert your cash value into one giant premium, and you will never owe another premium on the policy. It will stay as a whole life policy, so you don’t have to worry about it expiring. However, the downside is that your death benefit will go down drastically.

For both of these options to work, you need a significant amount of cash value built up in your life insurance policy already. The cash value will essentially replace the cost of the premiums, so you don’t have to worry about those monthly payments anymore. There are a few situations in which this might be a worthwhile change. Sometimes our financial responsibilities change as we get older, so we need less financial coverage. For example, maybe your kids have grown up and gone to college already, so you no longer need money on the policy to support them. Or maybe you were planning on using the policy to pay off your debts in your absence, but you got a raise and were able to pay them off faster than anticipated.

However, if you don’t have cash value saved up in the policy, it’s going to be very difficult to convert your permanent life insurance to term life insurance while remaining on the same policy. Instead, you should consider lowering the death benefit on your existing policy, which you can typically do at any time. This will help make your premiums lower and is much easier than trying to convert one policy type to the other.

Do Your Homework Before Buying Life Insurance!

Before purchasing your life insurance policy, it’s important to take the time to fully understand the benefits and downsides to each of these policy types. This will prevent you from being in a situation where you want to change policies later on. When making your decision, it’s important to think not only about your current financial situation but also what your financial situation will likely be later on in life. It may help to talk to an insurance agent before making a purchase so they can walk you through the options that make the most sense for your family.


  1. My mother applied for MEDICAID because she cannot pay for home health care out of pocket, but the rules state (NJ) she cannot have any assets over $2,000 and her whole life insurance policies have cash value over $23,000 and will pay out over $125,000 at the time of her death. I need to convert these to term policies. How do I do this?

    1. You can not convert them. You would need to surrender the cash value and take out a new policy. You should make sure that she qualifies for insurance first due to health, or pursue a guaranteed policy potentially.

      1. Wow, thanks for getting back to me. My agent is a sales person. She is not really looking out for the best thing for me. I wanted to do my homework first.

  2. I have whole life, I borrowed 5,000.00 for remodeling my salon. Now I can’t pay back the policy because I’m closed due to Corona virus. I need to pay interest until 2035 . I can pay that back now, struggling just for my Son to inherit the whole amount. When he is 55 years old.
    Does it make sense? The interest will be $145 a year for 25 years. I don’t like it. What do you think?

    1. Interest is required by law so there is no way around it. I would not feel pressured to pay back the sum of the loan now since society is likely to open back up within the next year or two, and life insurance can provide protection for decades.

  3. My husband and I spend 100.00 a month on whole life. Two hundred thousand for him and 100,000 for me. Our kids are grown and we would like to reduce the amount of coverage. How would we do that? Is it better to take out a new policy.

    1. Andrew @ LifeAnt

      Hi Nancy,
      If you have a whole life insurance policy, you would have a few options. You’ve surely built up some cash value by now, so you could use some of that to pay your premiums each month, either in whole or in part. You could also just take out some cash value in a larger amount and use it for whatever you need, including paying the premium. If you don’t want to keep the policy, then you could take out the entire cash value amount, which would surrender the policy. If you don’t have a whole life policy that doesn’t have cash value, then it might make sense to buy a new policy that just covers final expenses.

  4. I have a Universal Life Insurance Policy with a cash value of maybe 6,000 at most. I have had this policy for about 30 years as it is one my parents opened for me (I’m 31). My husband and I know we won’t be having children so to me this whole life insurance seems like I’m just paying expensive fees for the money to be invested when I could do this myself in a brokerage account. My premium is like $83 a month, so not terrible and I can afford it. I have a group life insurance policy at work but would rather not just rely on a policy through my job. Is there a way I can try and convert my Universal Policy to just a term life without going through the hassle of getting an exam and reapplying for coverage?

    1. Andrew @ LifeAnt

      Hi Abigail,
      It depends on your policy, but probably not. Some permanent policies allow you to use the cash value to buy a term policy, so you’ll have to check with your life insurance company. Otherwise, you could pull out that $6,000 to buy a term policy. The life insurance process isn’t too much of a hassle, depending on how much coverage you want. It’s just a matter of an application and possibly a medical exam, but your $6,000 should take you pretty far in those premiums.

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