California Life and Health Insurance Practice Exam

What type of insurance provides coverage for losses that occur during a specified period?

1. Whole life insurance

2. Term insurance

3. Universal life insurance

4. Participating insurance

The correct answer is: Term insurance

Term insurance is designed to provide coverage for a specified period, known as the term. This type of insurance pays a death benefit only if the insured passes away within the defined term, which can range from a few years to several decades. If the insured person outlives the term, the coverage ends, and no benefit is paid. This makes term insurance a straightforward and often more affordable option for individuals seeking temporary financial protection for their beneficiaries. Whole life insurance, universal life insurance, and participating insurance, on the other hand, do not have a limited time frame for coverage. Whole life insurance offers lifelong coverage and includes an investment component, while universal life also provides flexible premiums and death benefits but is designed for long-term protection. Participating insurance is a type of whole life insurance that shares dividends with policyholders. Each of these options is fundamentally structured to provide coverage beyond a specified term, unlike term insurance, which specifically limits coverage to a defined period.