Rhode Island Life Insurance Practice Exam

What is not typically a characteristic of a Term Life insurance policy?

1. Guaranteed death benefit

2. Cash value accumulation

3. Lower premiums compared to Whole Life

4. Flexible payment options

The correct answer is: Cash value accumulation

A Term Life insurance policy is designed to provide coverage for a specified period, typically in exchange for lower premiums compared to Whole Life insurance. One of the fundamental characteristics of Term Life insurance is that it offers a guaranteed death benefit, which means that if the insured passes away during the term of the policy, the beneficiaries will receive the face amount of the insurance policy. However, Term Life insurance does not build cash value, which is a hallmark feature of Whole Life insurance. This cash value accumulation allows policyholders to borrow against or withdraw funds during their lifetime, something that Term Life policies completely lack. Because Term Life is focused purely on offering temporary coverage with a straightforward benefit payout upon death, the absence of cash value accumulation is a defining characteristic of this type of policy. Additionally, while Term Life can offer some flexibility in payment and coverage options, these features are not as robust as those available in Whole Life policies. Hence, the lack of cash value accumulation stands out as a primary distinction when considering the characteristics of Term Life insurance.