South Carolina Life and Health Practice Exam

Which of the following best describes a term life insurance policy?

1. A policy that builds cash value over time

2. A policy that provides coverage for a specific term

3. A policy that covers whole life insurance needs

4. A policy that combines investment with insurance

The correct answer is: A policy that provides coverage for a specific term

A term life insurance policy is designed to provide coverage for a specific period, or term, which can range from a few years to several decades. This type of policy pays a death benefit to the beneficiaries if the insured passes away during the coverage period. After the term expires, the coverage ends, and there is no payout or cash value accumulated. Therefore, stating that a policy provides coverage for a specific term accurately captures the primary characteristic of term life insurance. In contrast, options that suggest building cash value, covering whole life insurance needs, or combining investment with insurance describe features associated with permanent life insurance policies. These types of policies, such as whole life or universal life, not only offer a death benefit but also include a cash value component that grows over time, which is not a feature of term life insurance.