Which risk is associated with a Convertible Term Assurance policyholder?

A Convertible Term Assurance policy allows the policyholder to convert their term life insurance into a permanent life insurance policy, typically without undergoing additional medical underwriting. The correct response highlights a significant risk associated with such policies: the possibility that the policyholder may struggle to afford the increased premiums that come with transitioning to a permanent policy.

When a term policy is converted, it generally leads to a higher premium due to the nature of permanent life insurance, which includes a cash value component and is designed to last for the policyholder's entire life. If the policyholder has not planned for this potential increase in cost, they may find themselves in a difficult financial position where they must choose between paying the higher premiums or letting the policy lapse, which can negate the benefits of having converted in the first place.

Understanding this risk is critical for both policyholders and financial advisors, as it emphasizes the importance of financial planning and the assessment of long-term affordability during the initial purchase and at the time of conversion.