Rhode Island Life Insurance Practice Exam

Which provision allows a policyholder to convert a term life policy into a permanent one without proving good health?

1. Renewal

2. Conversion

3. Reinstatement

4. Change of beneficiary

The correct answer is: Conversion

The provision that allows a policyholder to convert a term life policy into a permanent one without the need to provide evidence of insurability is known as the conversion provision. This feature is particularly valuable because it enables individuals to retain coverage as their needs evolve over time, especially as they age or their health deteriorates. By utilizing this provision, policyholders can avoid the risk of being denied coverage due to health issues that may arise after initially obtaining the term policy. It offers a sense of security, allowing the insured to transition to permanent life insurance, which typically provides lifelong coverage and may accumulate cash value. Other options do not pertain to the ability to convert a term policy. For example, renewal refers to extending the term of a policy, reinstatement involves bringing a lapsed policy back into force, and a change of beneficiary simply involves updating who will receive benefits upon the insured's death. Each of these serves different functions in the management of life insurance but does not offer the conversion ability that the correct answer provides.