AD Banker Comprehensive Practice Exam

Term insurance differs from permanent insurance in that term:

1. Builds cash value and provides limited death benefit options only

2. Costs more than permanent insurance

3. Builds no cash value, pays a death benefit only

4. Provides a variety of living benefits

The correct answer is: Builds no cash value, pays a death benefit only

Term insurance is characterized primarily by its structure of providing pure death benefit protection for a specified period, as opposed to permanent insurance, which includes a cash value component. The correct choice highlights that term insurance does not accumulate cash value; its purpose is to provide a death benefit to the beneficiary if the insured passes away during the term of the policy. This makes it an appealing option for individuals seeking affordable life insurance coverage without the additional features associated with permanent policies. Permanent insurance, on the other hand, is designed to last a lifetime and builds cash value over time, which can be borrowed against or withdrawn by the policyholder. This fundamental difference emphasizes that the key element of term insurance is the death benefit it provides without any cash value accumulation. As a result, the other options do not accurately describe term insurance. While permanent insurance can indeed cost more due to its cash value benefits and the lifelong coverage it provides, the assertion that term insurance costs more is not correct. Additionally, term insurance does not offer ‘living benefits’ or limited death benefit options in the same way some permanent policies do. This distinction is crucial for understanding the unique nature of term insurance as a temporary, cost-effective solution for life coverage needs.