Final answer:
The convertibility option under a term life insurance policy allows the policyholder to convert their policy into a permanent policy without evidence of insurability. The death benefit of the permanent policy is not reduced by 50%, but the premium is based on the attained age. Most term policies offer a convertibility option.
Step-by-step explanation:
The convertibility option under a term life insurance policy allows the policyholder to convert their term insurance policy into a permanent insurance policy without providing evidence of insurability, meaning they do not have to undergo a medical examination or provide proof of good health. This option is beneficial for individuals who wish to extend their coverage beyond the term period or convert to a policy with cash value accumulation.
Upon conversion, the death benefit of the permanent policy typically remains the same or may even increase, not reduced by 50%. However, the premium for the permanent policy will be based on the insured's attained age at the time of conversion, meaning it will be calculated based on their current age, which may result in a higher premium compared to what they were paying for the term policy.
Most term life insurance policies contain a convertibility option to provide flexibility and options to policyholders. It is important for individuals to carefully review the terms and conditions of their policy to understand the specific convertibility option available to them.
Learn more about convertibility option under a term life insurance policy