Minnesota Life Insurance License Practice Exam

Which type of life insurance policy is characterized by level premiums and a defined term?

1. Whole Life policy

2. Universal Life policy

3. Term Life policy

4. Variable Life policy

The correct answer is: Term Life policy

Term Life insurance is characterized by level premiums and a defined term, which is a specific period during which the policy provides coverage. Typically, this term can range from one year to 30 years or more. The key characteristics of Term Life insurance are that the premiums remain consistent throughout the duration of the term and it pays a death benefit only if the insured passes away within that specified term. This type of policy does not build cash value, which distinguishes it from Whole Life or Universal Life insurance policies. Whole Life policies provide lifelong coverage with no defined term and accumulate cash value over time. Universal Life also allows for flexible premiums and death benefits and includes a cash value component, making it different from the non-investment nature of Term Life. Variable Life policies, on the other hand, involve investment options and the death benefit can vary based on the performance of these investments, which further separates them from the straightforward structure of Term Life insurance. Understanding these distinctions is crucial for individuals seeking life insurance because it helps them align their coverage with their financial circumstances and goals.