Tennessee Insurance Practice Exam

How does Term Life insurance differ from Permanent Life insurance?

1. Term Life builds cash value whereas Permanent Life does not

2. Term Life is more expensive than Permanent Life

3. Term Life provides coverage for a specific time, while Permanent Life provides lifelong coverage

4. Permanent Life can only be converted to Term Life

The correct answer is: Term Life provides coverage for a specific time, while Permanent Life provides lifelong coverage

Term Life insurance specifically offers coverage for a set period of time, such as 10, 20, or 30 years. If the insured individual passes away during this term, the policy pays out a death benefit to the beneficiaries. Once the term expires, the coverage ceases, and there is typically no payout or cash value associated with the policy if no claim has been made. On the other hand, Permanent Life insurance, which includes Whole Life and Universal Life policies, provides coverage for the entire life of the insured, as long as the premiums are paid. In addition to lifelong protection, these policies also accumulate cash value over time, which can be borrowed against or withdrawn. The distinct nature of these coverage types underscores the primary difference: Term Life insurance serves a temporary need for life insurance coverage, while Permanent Life insurance serves a long-term need, providing lifelong coverage and cash value accumulation. This differentiating factor illustrates the fundamental purpose and use cases for each type of policy in financial planning.