AD Banker Comprehensive Practice Exam

What must a newly converted individual policy be when converting from group life insurance?

1. Fixed deferred annuity

2. Decreasing term policy

3. 20 year term life policy

4. Permanent or whole life policy

The correct answer is: Permanent or whole life policy

When an individual is converting from group life insurance to a personal policy, the new policy must be a permanent or whole life policy. This requirement is grounded in the nature of group life insurance, which typically provides coverage that is structured on a term basis within a group setting. The primary purpose of the conversion privilege is to allow individuals who are losing their group coverage to transition into a policy that provides lifelong coverage, guaranteeing that their insurance needs are met even after they no longer qualify for group coverage. Permanent life policies, such as whole life or universal life, not only offer a death benefit but also accumulate cash value over time, ensuring that the policy remains in effect for the insured person's lifetime as long as the premiums are paid. Choosing a permanent or whole life policy gives the converted policyholder greater security and peace of mind compared to other types of policies, such as a term policy, which does not provide coverage beyond a specified period. This transition is especially beneficial for those who may wish to continue their insurance coverage at a level that does not expire. While other options like fixed deferred annuities or decreasing term policies might have certain applications in different contexts, they do not fulfill the primary requirement of providing lifelong insurance coverage after conversion from group life insurance, which is