Texas General Lines — Life, Accident, Health and HMOLife InsuranceEasy
An individual purchases a 10-year level term life insurance policy. Which of the following statements is TRUE regarding this policy?
- AThe premium payments will remain constant for the entire 10-year term.
- BThe cash value will grow steadily over the 10-year term.
- CThe policy will automatically renew at the end of 10 years at the same premium.
- DThe death benefit will decrease annually over the 10-year term.
Show answer & explanationAnswer & explanation
Correct answer: A. The premium payments will remain constant for the entire 10-year term.
A 10-year level term life insurance policy means that the death benefit remains constant ('level') for the 10-year term, and typically, the premium payments for that term are also constant. Term life policies do not build cash value.
Why the other options are wrong
- B. Term life insurance does not build cash value.
- C. While many term policies are renewable, they almost always renew at a higher premium, reflecting the insured's increased age and mortality risk.
- D. A 'level' term policy means the death benefit remains constant, not decreases. A 'decreasing term' policy would have a decreasing death benefit.
Level Term Life Insurance
A type of term life insurance where the death benefit remains constant (level) for the entire policy term, and the premiums are typically level for that term.
- Death benefit is fixed.
- Premiums are fixed for the term.
- No cash value accumulation.
- Temporary coverage.
Memory trick: Term Life: Temporary, no cash, level if stated.