South Carolina Life Insurance Practice Exam

What is the term for a policy that pays benefits only if the insured dies during the specific term?

1. Endowment Policy

2. Term Insurance

3. Whole Life Policy

4. Participating Policy

The correct answer is: Term Insurance

The term for a policy that pays benefits only if the insured dies during a specific term is known as term insurance. This type of life insurance is designed to provide coverage for a limited period, such as 10, 20, or 30 years. If the insured passes away within that time frame, the designated beneficiaries receive a death benefit. However, if the term expires and the insured is still alive, no benefits will be paid out, and the coverage generally ends unless the policy is renewed or converted to another type of policy. This focus on a defined duration and the straightforward nature of term insurance makes it a popular choice for individuals seeking affordable life insurance options to cover specific financial responsibilities, such as a mortgage or dependents' needs for a certain period. It is distinct from other types of life insurance, where the benefits may not be restricted to a specific term, leading to different implications for both premiums and potential payouts.