Final answer:
A term policy that allows the right of conversion means that policyholders can switch from temporary coverage to permanent coverage. This is useful for individuals who want lifelong coverage and potentially build cash value over time.
Step-by-step explanation:
If a term policy allows the right of conversion from term to permanent coverage, it means that the policyholder has the option to switch from the temporary coverage of the term policy to a permanent insurance policy, such as whole life or universal life insurance.
This can be beneficial for individuals who initially purchase a term policy but later decide that they want lifelong coverage. By converting to a permanent policy, they can lock in coverage for the rest of their life and potentially build cash value over time.
For example, let's say a person buys a 20-year term policy when they're young and healthy to protect their family financially. As they approach the end of the term, they may realize that they still need coverage after the 20 years are up. In this case, they can convert their term policy to a permanent one, ensuring they have coverage for the long term.