What does a term conversion option permit a policyholder to do?

The term conversion option allows a policyholder to convert their existing term life insurance policy into a permanent life insurance policy, such as whole life or universal life, without the need for additional medical underwriting. This is a significant feature because it offers the policyholder flexibility and security; if their health status changes during the term of the policy, they can still obtain permanent coverage without facing potential denial or higher premiums that could come from underwriting.

This option is particularly valuable for individuals who may have initially chosen a term policy due to lower premiums but later find that they wish to retain coverage for their lifetime or accumulate cash value, which is a characteristic of permanent policies. By not requiring medical underwriting at the time of conversion, the policyholder can convert their policy regardless of any health changes that may have occurred since the original policy was purchased.

The other choices do not accurately reflect the function of a term conversion option. Switching from permanent to term life insurance or canceling the policy without penalties are not aspects of the conversion option, nor is the ability to increase the death benefit without additional charges. This assurance of conversion under favorable terms highlights the importance of the term conversion option in providing long-term financial planning for policyholders.