What does it mean to exercise the "conversion" option in insurance?

Exercising the "conversion" option in insurance specifically refers to the ability of the policyholder to switch from a term life insurance policy to a permanent life insurance policy. This option is significant because term policies provide coverage for a specified period and do not accumulate cash value, while permanent policies, such as whole life or universal life, offer lifetime coverage and build cash value over time.

When a policyholder exercises this option, they can secure permanent coverage without undergoing a new medical examination, which is particularly advantageous for individuals who may have health issues that developed after the initial purchase of the term policy. The conversion feature is often included in term policies to provide flexibility and ensure continued insurance protection despite changes in health status.

The other options do not accurately reflect the definition of the conversion option, as changing the payout beneficiary, upgrading policy coverage, or transferring ownership of the policy involves different processes and do not specifically relate to switching types of policies.