What is a key characteristic of term insurance?

What is a key characteristic of term insurance?

• A. It accumulates cash value over time
• B. It provides a death benefit for a specific period
• C. It requires annual premiums only
• D. It has no age limit for coverage

Answer: (B)

A key characteristic of term insurance is that it provides a death benefit for a specific period. This means that the coverage is only effective for a predetermined length of time, such as 10, 20, or 30 years. If the insured individual passes away during this term, the beneficiaries receive the death benefit; however, if the term ends and the individual is still alive, the coverage expires without any payout. This feature distinguishes term insurance from permanent insurance types, which typically accumulate cash value and provide lifelong coverage as long as premiums are paid. In contrast, term insurance is designed purely for protection during the specified term and does not build any cash value or offer extended coverage beyond that period. Understanding how the limited duration of coverage impacts its function is crucial for effective financial planning and risk management.

A key characteristic of term insurance is that it provides a death benefit for a specific period. This means that the coverage is only effective for a predetermined length of time, such as 10, 20, or 30 years. If the insured individual passes away during this term, the beneficiaries receive the death benefit; however, if the term ends and the individual is still alive, the coverage expires without any payout.

This feature distinguishes term insurance from permanent insurance types, which typically accumulate cash value and provide lifelong coverage as long as premiums are paid. In contrast, term insurance is designed purely for protection during the specified term and does not build any cash value or offer extended coverage beyond that period. Understanding how the limited duration of coverage impacts its function is crucial for effective financial planning and risk management.