In term life insurance, what does "conversion" refer to?

In term life insurance, "conversion" specifically refers to the right that policyholders have to convert their term policy into a permanent life insurance policy without the need to provide evidence of insurability. This feature is crucial because it allows individuals to secure coverage beyond the term period, regardless of any changes in their health status that may occur during that time. Should the insured develop health issues, they would typically face higher premiums or even be denied coverage if they tried to apply for a new policy. The conversion option ensures that they can maintain life insurance protection while transitioning to a permanent plan, which usually includes a cash value component and longer coverage duration.

The other options mentioned do not accurately define the concept of conversion in this context. For instance, receiving dividends pertains to participating whole life policies rather than term policies, while lowering premium rates or extending coverage without renewing speak to different aspects of insurance policies.