When a policyowner exchanges a term policy for a whole life policy without providing proof of good health, which of these apply?
|Extended term option|
The Correct Answer Is:
- Conversion provision
The correct answer is the “Conversion provision.” The Conversion provision is a feature in life insurance policies that allows policyowners to exchange a term life insurance policy for a whole life policy without the need to provide proof of good health (i.e., undergo a medical examination or answer health-related questions).
This provision is designed to provide policyowners with greater flexibility and the opportunity to convert their temporary term coverage into a permanent whole life policy. Here’s a detailed explanation of why the answer is correct, along with explanations of why the other options are not:
Conversion Provision – Correct Answer:
The Conversion provision is a fundamental feature of many term life insurance policies. It allows policyowners to convert their term policies into permanent whole life or universal life policies, typically within a specified conversion period (e.g., during the first 5 to 10 years of the term policy).
The significant advantage of the Conversion provision is that it enables the policyowner to convert their term policy to a permanent policy without the need to provide evidence of insurability, such as undergoing a medical examination or answering health-related questions.
This can be especially valuable if the policyowner’s health has deteriorated since the issuance of the original term policy, as it ensures that they can maintain coverage in a permanent policy.
The specific terms and options available for conversion may vary depending on the insurance company and the policy, but the conversion provision is designed to provide flexibility and peace of mind to policyowners.
Now, let’s discuss why the other options are not correct:
Extended Term Option:
The Extended Term Option is a feature in some life insurance policies, particularly whole life policies. It allows the policyowner to use the cash value of the policy to purchase extended term insurance for a specific period. However, it does not involve converting a term policy to a whole life policy, nor does it pertain to the conversion of term insurance.
A 1035 Exchange refers to a provision in the Internal Revenue Code (Section 1035) that allows for the exchange of one life insurance policy for another without incurring any immediate tax consequences.
This provision is typically used when policyowners want to exchange one permanent life insurance policy for another, preserving the tax-deferred status of the cash value. It does not apply to converting a term policy into a whole life policy.
The incontestable period is a specified period, typically the first two years after the issuance of a life insurance policy, during which the insurance company has the right to contest the policy based on material misrepresentations or omissions made by the policyowner on the application.
After the incontestable period, the insurance company generally cannot contest the policy for these reasons. This provision pertains to the insurer’s ability to contest the policy and is not related to converting a term policy to a whole life policy.
In summary, the “Conversion provision” allows policyowners to exchange a term life insurance policy for a whole life policy without providing proof of good health. This provision is crucial for policyowners who wish to transition from temporary term coverage to permanent coverage without the need for additional medical underwriting.
The other options, such as the Extended Term Option, 1035 Exchange, and incontestable period, address different aspects of life insurance and do not apply to the conversion of term insurance.