California Life and Health Insurance Practice Exam

Which type of life insurance policy provides coverage for a specified term or period of time?

1. Whole life insurance

2. Universal life insurance

3. Term life insurance

4. Variable universal life insurance

The correct answer is: Term life insurance

Term life insurance is specifically designed to provide coverage for a predetermined period, often ranging from one to thirty years. The nature of this policy means that the insured will have life insurance protection during the specified term, but no benefits will be paid out if the insured does not pass away during that time. This type of insurance is typically more affordable than permanent life insurance options, as it is purely risk-based and does not include a savings or investment component. Whole life insurance, on the other hand, offers coverage for the entire lifetime of the insured, as long as the premiums are paid, and it has a cash value component. Universal life insurance also provides lifelong coverage but includes flexible premiums and an investment savings element. Variable universal life insurance combines features of both universal life and investments, allowing the policyholder to direct the cash value to various investment accounts, but it does not limit the coverage to a specified term. These characteristics distinguish term life insurance as the clear choice for providing coverage solely for a specific period.