West Virginia State Life Insurance Practice Exam

What characteristic is unique to Term insurance?

1. It builds cash value over time

2. It is generally more expensive than whole life

3. It expires at the end of the policy period

4. It has a guaranteed payout at death

The correct answer is: It expires at the end of the policy period

Term insurance is primarily characterized by the fact that it provides coverage for a specified period, or "term," and expires at the end of that period if the insured individual does not pass away. This feature means that if the insured survives the term, the coverage ceases, and no benefits are paid out. This design contrasts with other types of life insurance, such as whole life, which offer lifelong coverage and accumulate cash value. The policy’s finite nature is significant for individuals seeking temporary protection, allowing them to secure coverage for specific needs, such as raising children or covering a mortgage, without the commitment of lifelong premiums. Thus, understanding this characteristic aids in distinguishing term insurance from permanent forms of insurance, emphasizing its temporary aspect and lack of cash accumulation.