Massachusetts Life Producer Practice Exam

What characteristic distinguishes term life insurance from permanent life insurance?

1. Dividends availability

2. Premium payment structure

3. Death benefit guarantees

4. Coverage duration

The correct answer is: Coverage duration

Term life insurance is primarily distinguished from permanent life insurance by the duration of the coverage it provides. Term life insurance offers protection for a specified period, such as 10, 20, or 30 years. If the insured passes away during this term, the death benefit is paid out to the beneficiaries. However, if the insured outlives this term, the coverage expires, and there is no payout or cash value accrued. In contrast, permanent life insurance policies, such as whole life or universal life, provide lifelong coverage as long as premiums are paid. These policies build cash value over time, which can be accessed by the policyholder, and typically have more complex premium structures and the potential for dividend payments. This distinction regarding coverage duration is essential for individuals considering their insurance options, as it directly impacts their long-term financial planning and protection needs. Understanding these differences helps consumers choose the right life insurance product based on their specific circumstances and goals.