AD Banker Comprehensive Practice Exam

Which type of insurance primarily provides coverage for a specified period of time?

1. Permanent insurance

2. Universal life insurance

3. Term insurance

4. Endowment insurance

The correct answer is: Term insurance

The correct answer, term insurance, is specifically designed to provide coverage for a defined period of time, often referred to as the "term." This can range from one year to several decades, depending on the policyholder's needs. If the insured individual passes away during this period, the policy pays out a death benefit to the beneficiaries. If the term expires and the policyholder is still living, no benefit is paid out, and coverage ends unless renewed or converted into a different type of policy. In contrast, permanent insurance options like universal life insurance and endowment insurance are intended to provide lifelong coverage, meaning they do not expire after a specified time, as term insurance does. Permanent insurance policies accumulate cash value over time and can remain in force as long as the premiums are paid, offering different features that term policies do not, such as the ability to borrow against the policy. Thus, term insurance is unique among these types of insurance in its focus on providing coverage only for a limited, specified duration.