Converting term life insurance into endowment life insurance: opportunities and pitfalls for your financial provision
09.04.25
3
Minutes
Katrin Straub
Managing Director at nextsure
Would you like to convert your term life insurance into an endowment life insurance policy and are wondering whether this is possible and worthwhile? Many policyholders use this option to build up capital for retirement as well as provide protection for their dependants. Find out here which requirements apply and what you need to bear in mind.
The topic in brief and concise terms
Converting a term life insurance policy into an endowment life insurance policy is often possible within the first ten years without a new health check (conversion right).
Higher premiums and less flexibility in financial hardship are key disadvantages of capital life insurance compared with pure term life insurance.
Alternatively to conversion, an existing term life insurance policy and a separate savings plan (e.g. ETF, private pension insurance) can offer more flexibility and potentially better returns.
Understanding the basics: From term life insurance to endowment life insurance
A term life insurance policy covers only the risk of death and pays an agreed sum to the beneficiaries if the insured person dies within the policy term. It is primarily intended to protect dependants, for example for families or to secure a loan of over €100,000. By contrast, the whole life insurance policy combines death cover with a savings component. Part of the premiums goes towards building up capital, which is paid out at the end of the term or in the event of death – often including interest and bonus distributions. The premiums for a whole life insurance policy are therefore typically 30 to 50 per cent higher than for a pure term policy. These fundamental differences are crucial if you are considering converting your term life insurance policy.
The right to exchange: Your path to transformation
Many insurers offer a so-called conversion right, which allows you to convert your existing term life insurance into endowment life insurance. This right is usually limited to the first ten years after the contract starts. The main advantage is often that no new health assessment is required for the conversion, provided the sum insured is not increased. This means that even if your health has deteriorated since you took out the term policy, you may still be able to benefit from a policy that builds up capital. However, note that some insurers set specific deadlines for exercising this right; for example, the application must be submitted up to three months before the desired conversion date. The exact conditions can be found in your policy documents. Checking these details is an important step before you switch the policy.
Weigh up the opportunities and benefits of the conversion
Converting term life insurance into whole life insurance can offer several advantages if your life circumstances or financial goals change. The most obvious benefit is the additional build-up of capital for retirement savings, while death cover remains in place. For example, if after five years of the policy term you have more financial flexibility, conversion allows you to invest that extra money for the future. Another plus point is the aforementioned option of often doing this without a new medical examination, which can be particularly valuable if health issues have arisen in the meantime. This gives you combined cover tailored to your new phase of life. Consider which cover is currently right.
Consider possible disadvantages and cost factors
Despite the advantages, there are also disadvantages and costs to consider when converting a term life insurance policy. The premiums for an endowment life insurance policy are significantly higher, as they include the savings element. For example, if you wish to keep a death benefit of €200,000, the monthly premiums can rise by €50 or more. A key aspect is the reduced flexibility in the event of financial difficulties: if an endowment life insurance policy is made paid-up, not only does the savings process come to a halt, but the death benefit often does as well, or is at least reduced significantly. With separate contracts (risk cover and a separate savings plan), you could pause one policy in an emergency while the other continues to run. In addition, the returns on traditional endowment life insurance policies have often declined over the past fifteen years. Weigh these points carefully before converting your life insurance policy.
Practical example: When is conversion worthwhile?
Imagine a young family: the main earner, aged 30, took out a term life insurance policy for EUR 250,000 five years ago to provide financial protection for their partner and child. Now, at 35, income has increased and there is a desire to make additional provision for retirement. Converting it into an endowment life insurance policy could make sense here, as the health check would probably be waived and the elapsed policy term would be taken into account. The additional monthly cost of, for example, EUR 70 is regarded as affordable. If he were to take out a new endowment life insurance policy now, the premium for the same benefit would be higher due to the older entry age, and a health check would be unavoidable. This is where the benefit of the conversion right becomes apparent. However, it is advisable to review the alternatives.
The following points speak in favour of a conversion in this scenario:
No new health check for the 35-year-old.
Combining death benefit protection and retirement provision in one contract.
Using the increased income for long-term wealth accumulation.
The sum insured of EUR 250,000 is retained for the family.
These considerations help to assess the personal situation more accurately.
Expert depth: legal and tax aspects
From a legal perspective, the right of conversion is anchored in the General Insurance Conditions (AVB) of your contract. There is no generally applicable statutory provision in the Insurance Contract Act (VVG) that requires the conversion of term life insurance into endowment life insurance; it is a contractual option. Section 167 VVG does regulate a form of conversion, but it is aimed at protection from seizure under Section 851c ZPO and is usually not directly relevant for the purpose discussed here. From a tax perspective, note: if the term life insurance was taken out after 31 December 2004, the proceeds from the later endowment life insurance are generally taxable (often half-taxable if certain requirements, such as a term of at least twelve years and payment after age 62, are met). The conversion itself usually does not trigger any immediate tax liability, but the later payout of the endowment life insurance is subject to the tax regulations then in force. Our expert tip: have a specialist check the exact impact on your policy, as individual contract details are decisive. Tax advice is often worthwhile here.
Before converting your term life insurance, you should consider alternatives. One option is to continue the existing risk policy unchanged and, in parallel, take out a separate savings contract. This could be an ETF savings plan, a bank savings plan or a private pension insurance policy. This separation of risk protection and capital accumulation often offers greater flexibility. In the event of financial difficulties, for example, you could temporarily pause the savings plan without jeopardising your death cover – an advantage over endowment life insurance, where the two are often linked. It also gives you more freedom to choose the investment vehicle for your savings portion, potentially with higher returns. A comparison of the total costs and the expected returns over a period of, for example, 20 years is revealing here. Consider whether the convenience of a combined product outweighs the potential disadvantages in terms of flexibility and returns. Sometimes paid-up status for the endowment life insurance is also an option, if one already exists and is financially burdensome, or reviewing the indexation of older contracts.
Here are some separate savings forms as alternatives:
ETF savings plans for potentially higher returns with broad diversification.
Classic bank savings plans with fixed interest rates for security-oriented savers.
Private pension insurance policies (unit-linked or traditional) for targeted retirement provision.
Fixed-term deposit accounts for medium-term investments with guaranteed interest.
Building savings contracts, if home ownership is planned later.
These options offer different return-risk profiles.
Conclusion: A personal decision with foresight
Converting a term life insurance policy into an endowment life insurance policy is an option that may be suitable for some policyholders at a certain stage of life, often after around five to ten years of the policy term. It makes it possible to build up retirement provision without a renewed health check if the conversion right is used. However, this involves higher premiums and potentially less flexibility. Careful consideration of your personal situation, financial goals and available alternatives is essential. Check your policy terms carefully and compare the long-term costs and returns. There is no single right solution for everyone; the decision depends heavily on your individual needs and risk appetite. Professional advice can help you develop the strategy that is best for you. Remember that every financial decision has an impact on your future.
Request an individual risk analysis now: Have your insurance situation reviewed free of charge and receive specific recommendations for optimisation.
More useful links
Wikipedia offers information on term life insurance in Germany.
Wikipedia offers information on life insurance in Germany.
The Federal Ministry of Finance provides information on retirement provision and Riester pensions.
The German Bundesbank publishes its monthly reports.
FAQ
How long do I have to convert my term life insurance policy?
The conversion right is usually limited to the first ten years after the contract is concluded. You can find the exact period in your insurance terms and conditions.
Do I need a new health assessment for the conversion?
As a rule, a new health assessment is not necessary if you exercise the conversion right and do not increase the sum insured. If the sum is increased, a new assessment is usually required.
Are the contributions higher after the conversion?
Yes, the premiums for an endowment life insurance policy are significantly higher, as they include, in addition to risk cover, a savings component for capital accumulation.
What are the disadvantages of the conversion?
The main disadvantages are higher contributions, less flexibility in the event of payment difficulties (as risk and savings components are often linked) and potentially lower returns compared with modern, separate investment products.
Can I adjust the sum insured when converting?
Yes, an adjustment is often possible. Reducing the death benefit can lower the premiums. An increase is usually associated with a new health check.
What if my contract does not include a right of exchange?
Without a contractually agreed right of exchange, a direct conversion is usually not possible without further ado. You would then need to cancel the term life insurance policy (which often does not result in any surrender value) and take out a new endowment life insurance policy, including a new health assessment and on the terms then applicable.
