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Ask Dave

Should I Convert From Term to Whole Life Insurance?

Jennifer was diagnosed with congestive heart failure last year. She has term life insurance, and she was asked if she'd like to convert to whole life. Should she consider this in order to keep life insurance?

QUESTION: Jennifer in Texas was diagnosed with congestive heart failure last year. She eventually expects to get a heart transplant. She and her husband have term life insurance, and her life insurance company sent a letter asking if she’d like to convert to whole life. Is this something she should consider in order to keep life insurance?

ANSWER: I would wait until the last possible minute to do it. You have 12 years left on your term policy. Even then, I’m not sure I would do it. You may be able to just extend that term policy. There’s a possibility of that. You need to look at that particular company and see what they’ll do. These days, they are insuring people who we used to say in the business were uninsurable. Twelve years may go a long way in that as well.

Lastly, in the next 12 years, let’s see where your finances are. At 52 years old, if the kids are grown and gone and the house is paid off and we have a bunch of money saved, you may not need life insurance on you. You may be self-insured. In other words, if you were to pass away at 56 and the kids are grown and gone and he has $500,000 in mutual funds and no mortgage, I think he’s going to be just fine with no insurance. You’ve become self-insured by becoming debt-free and building wealth.

I definitely wouldn’t go in and increase my premiums by 95% now—20 times more premium for the same amount of money and coverage of whole life—when there’s a real possibility, because you guys have your financial act together, that you may not even need insurance at that point. If you do, you might be able to extend it. Or who knows? You might actually be insurable in that world 12 years from now. There are people—former cancer patients and diabetes and things—getting life insurance who couldn’t 12 years ago. The insurance market has moved that much. The market has shifted, and there are policies being written we used to think would never be written. Obviously, they are paying extra. They’re not getting the best rates that are out there in those situations, but they’re at least able to get insurance. It may be that you want to reduce dramatically the amount you have at that point.

I don’t think whole life is your answer. I think financial planning is your answer.