Question

6 lillian, age 54, owns a convertible term insurance policy which she purchased 10 years ago. her health has declined in the last few years and she is planning to use the conversion option to obtain permanent life insurance. she would like to know about the effect of this conversion on the incontestability provisions and the suicide exclusion clause. identify the correct statement.
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a. lillian’s converted permanent policy will be subject to a new two - year contestability period and a new suicide exclusion period
b. lillian’s converted permanent policy will be subject to a new two - year contestability period but not a new suicide exclusion period
c. lillian’s converted permanent policy will be subject to a new suicide exclusion period but not a new two - year contestability period
d. lillian’s converted permanent policy will not be subject to a new two - year contestability period and suicide exclusion period
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Explanation:

To solve this, we analyze the conversion of a convertible term insurance policy to permanent life insurance. When converting a term policy to permanent, the contestability and suicide exclusion periods:

• Contestability period: Usually, a new 2 - year contestability period applies if the insured's health has declined (as Lillian's has), because the insurer re - evaluates risk.
• Suicide exclusion period: The suicide exclusion period from the original term policy does not carry over; a new suicide exclusion period is not imposed because conversion is a contractual right, and the original underwriting already considered the initial risk (including the initial suicide exclusion period).

Now let's analyze each option:

• Option a: Says there's a new two - year contestability period and a new suicide exclusion period. But we know the suicide exclusion period doesn't restart, so this is wrong.
• Option b: Says new two - year contestability period but no new suicide exclusion period. This matches our analysis.
• Option c: Says new suicide exclusion period but no new contestability period. But with declined health, a new contestability period should apply, so this is wrong.
• Option d: Says no new contestability or suicide exclusion period. But the health decline means a new contestability period should apply, so this is wrong.

Answer:

b. Lillian's converted permanent policy will be subject to a new two - year contestability period but not a new suicide exclusion period