Life License Qualification Program (LLQP) Practice Exam

What is a common result of the death benefit in a Term Life policy?

1. It accumulates cash value over time

2. It pays out only upon death during the term

3. It can be borrowed against

4. It remains constant regardless of age

The correct answer is: It pays out only upon death during the term

The death benefit of a Term Life policy is designed specifically to provide financial protection during a predetermined period, known as the term. This benefit pays out only when the insured passes away within that specified term. If the insured lives beyond the term, the policy expires, and no benefit is paid out. This characteristic emphasizes the nature of Term Life insurance as a pure protection product, focusing solely on providing a death benefit without any savings or investment component. In contrast, other types of life insurance, such as whole life policies, may accumulate cash value over time, which is not the case with a typical Term Life policy. Additionally, since Term Life policies do not build cash value, there is no opportunity to borrow against them, further differentiating them from permanent life insurance options. Finally, while the death benefit may remain constant, it is crucial to recognize that it becomes effective only if the death occurs while the policy is active, underscoring the importance of the coverage during the policyholder's life.