AD Banker Comprehensive Practice Exam

What typically happens when the insured dies in a term life policy?

1. The policy pays out the face amount to beneficiaries

2. The premiums are refunded to the insured's estate

3. No benefits are paid out

4. The policy converts to a whole life policy

The correct answer is: The policy pays out the face amount to beneficiaries

In the case of a term life insurance policy, the primary purpose is to provide financial protection for a specified period, known as the term. When the insured individual passes away within that term, the insurance company is obligated to pay the face value of the policy to the named beneficiaries. This payout is designed to assist the beneficiaries in managing financial responsibilities or maintaining their standard of living after the loss of the insured. Term life insurance policies do not accumulate cash value, which is a characteristic of permanent life insurance products. Thus, there is no refund of premiums or conversion to another type of policy upon the insured's death in a standard term life policy. The primary function is straightforward: provide a death benefit if the insured dies during the specified term, ensuring that the financial needs of the insured’s dependents or beneficiaries are met.