International Baccalaureate (IB) Practice Exam

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What is the primary characteristic of term life insurance?

It provides coverage for the policyholder's entire life
It covers specific healthcare expenses
It provides coverage for a specified period
It has a cash value component

The correct answer is: It provides coverage for a specified period

The primary characteristic of term life insurance is that it provides coverage for a specified period. This means that the policyholder is insured only for a predetermined duration, which can range from a few years to several decades, depending on the chosen policy. If the policyholder passes away within this term, the beneficiaries receive a death benefit; however, if the policyholder outlives the term, the coverage ends, and no benefit is paid out. This aspect distinguishes term life insurance from other types of life insurance policies, such as whole life or universal life insurance, which provide coverage for the entire life of the policyholder. Additionally, term life insurance does not have a cash value component, making it more affordable than plans that accumulate cash value over time. The focus on providing coverage for a specific period reflects the needs of individuals looking for financial protection during particular life stages, such as raising children or paying off a mortgage.