South Carolina Life Insurance Practice Exam

What is the primary use of term life insurance?

1. To provide lifetime coverage

2. To cover temporary financial obligations

3. To accumulate cash value

4. To serve as an investment vehicle

The correct answer is: To cover temporary financial obligations

The primary use of term life insurance is to cover temporary financial obligations. This type of insurance is designed to provide a death benefit for a specific period, such as 10, 20, or 30 years. It is particularly useful for individuals who want to ensure that their beneficiaries are financially protected during the years when financial responsibilities, such as raising children, paying off a mortgage, or covering other debts, are most pressing. Term life insurance does not build cash value, which differentiates it from whole life or universal life policies. Instead, it focuses solely on providing a death benefit if the insured passes away within the term of the policy. This makes it a cost-effective option for those seeking substantial coverage at a lower premium, allowing them to manage their short-term financial risks effectively.