Florida 2-15 Life, Health and Variable Annuity AgentGeneral Knowledge of Life InsuranceEasy
A client, aged 35, purchases a 20-year level term life insurance policy with a face amount of $500,000. Which of the following statements accurately describes the policy's characteristics?
- AThe policy will accumulate cash value that can be borrowed against.
- BThe policy automatically renews at the end of 20 years with the same premium and death benefit.
- CThe premium will increase every year, and the death benefit will decrease over the 20 years.
- DThe premium will remain level for 20 years, and the death benefit will remain $500,000 for 20 years.
Show answer & explanationAnswer & explanation
Correct answer: D. The premium will remain level for 20 years, and the death benefit will remain $500,000 for 20 years.
A level term life insurance policy provides a guaranteed level premium and a guaranteed level death benefit for a specified period, typically 10, 20, or 30 years. It does not accumulate cash value.
Why the other options are wrong
- A. Term life insurance policies, by definition, do not accumulate cash value.
- B. While some term policies are renewable, they typically renew at a higher premium based on the insured's attained age, not at the same premium and death benefit.
- C. This describes a decreasing term policy or an annually renewable term policy, not a level term policy.
Level Term Life Insurance
A type of life insurance that provides a guaranteed level death benefit and a guaranteed level premium for a specified period of time.
- No cash value accumulation
- Coverage for a defined term (e.g., 10, 20, 30 years)
- Premiums remain constant throughout the term
Memory trick: Term-inator covers a fixed period, no frills, just facts.