AD Banker Comprehensive Practice Exam

Which type of policy can be changed from one that does not accumulate cash values to one that does?

1. Universal life policy

2. Variable life policy

3. Convertible term policy

4. Permanent policy

The correct answer is: Convertible term policy

The correct choice is a convertible term policy because it specifically allows policyholders the option to convert their term life insurance coverage into a permanent life insurance policy. Term policies do not accumulate cash values, but the conversion feature enables the insured to transition to a type of policy such as whole life or universal life, which do build cash value over time. This flexibility is particularly important for individuals who may have initially chosen a term policy for its lower cost but later see the benefit of a policy that accumulates cash value. The act of conversion usually comes with certain stipulations or time frames within which the conversion must occur, and typically no new medical underwriting is required if the conversion happens while the term policy is active. In contrast, universal life and variable life policies are both types of permanent life insurance that inherently accumulate cash values from the outset. A permanent policy is a broad category that includes these options but does not inherently offer the change from a term policy. Therefore, convertible term policies uniquely enable this shift from no cash value to cash value accumulation through the conversion process.