Tennessee Life Producer Practice Exam

What is an essential characteristic of term life insurance?

1. It builds cash value

2. It is typically renewable

3. It lasts for the insured's lifetime

4. It accumulates dividends for policyholders

The correct answer is: It is typically renewable

An essential characteristic of term life insurance is that it is typically renewable. This means that after the initial term of the policy ends, the policyholder has the option to renew the coverage for another term without needing to provide evidence of insurability, although the premium may increase based on the insured's age at the time of renewal. This feature provides flexibility for policyholders who may not be ready to convert to a permanent policy or who want to maintain some level of coverage as their needs change over time. In contrast, term life insurance does not build cash value, which is a distinct aspect of permanent life insurance, nor does it last for the insured's lifetime; it only provides coverage for a specified period (e.g., 10, 20, or 30 years). Additionally, term policies do not accumulate dividends for policyholders, as dividends are typically associated with participating policies in whole life insurance, not term insurance. Therefore, the characteristic of being renewable is what sets term life insurance apart and highlights its essential purpose of providing temporary coverage.