What is the effect of a conversion option in a life insurance policy?

The conversion option in a life insurance policy is a provision that allows the policyholder to switch from one type of policy to another, often from a term life insurance policy to a permanent life insurance policy, without having to provide evidence of insurability. This means that the policyholder can convert their existing coverage into a different type of coverage, typically based on their current age and health status, which may otherwise influence eligibility for new coverage.

This provision is particularly beneficial in that it allows individuals to secure life insurance protection without facing potentially higher premiums or denial due to changes in their health that may have occurred since their original policy was issued. The conversion option is a valuable feature, especially for those who may be concerned about their likelihood of obtaining coverage later on due to health factors or other circumstances.

The other options do not accurately reflect the purpose of a conversion option. Changes to beneficiary designations relate to how the death benefit is assigned rather than changing the policy itself. Discounts on premiums and automatic increases in the death benefit are not functions of the conversion option, which specifically addresses how a policyholder can change their type of insurance coverage while maintaining their existing insurability status.