Minnesota Life Insurance License Practice Exam

What characteristic of term life insurance distinguishes it from whole life insurance?

1. Premiums accumulate as cash value

2. Coverage is temporary and expires after a period

3. It is always more expensive than whole life insurance

4. It provides investment opportunities

The correct answer is: Coverage is temporary and expires after a period

Term life insurance is characterized by coverage that is temporary and expires after a specified period. This means that the policy provides life insurance protection for a set number of years, such as 10, 20, or 30 years. If the insured individual passes away within that time frame, the beneficiaries receive the death benefit. However, if the term ends and the insured is still alive, the coverage ceases, and there is no value or payout. This is distinct from whole life insurance, which offers permanent coverage for the insured’s entire life, as long as premiums are paid, and often includes a cash value component that can accumulate over time. In contrast, other options relate to aspects that do not define term life insurance. For example, the accumulation of premiums as cash value is a feature of whole life insurance, not term. Pricing discrepancies can vary based on several factors, but term life is typically less expensive than whole life for equivalent coverage amounts due to its temporary nature. Lastly, term life insurance does not offer investment opportunities; that feature is commonly found in whole life insurance policies and other investment-oriented products. Thus, the distinguishing characteristic of term life insurance is indeed its temporary coverage that expires after a set period.