Future Business Leaders of America (FBLA) Business Law Practice Exam

How is term life insurance best defined?

1. Insurance that lasts for the lifetime of the insured

2. Insurance issued for a particular period, usually five or ten years

3. Insurance that covers multiple life events

4. Insurance with investment components

The correct answer is: Insurance issued for a particular period, usually five or ten years

Term life insurance is best defined as insurance issued for a particular period, typically five or ten years. This type of insurance provides coverage for the duration specified in the policy, and if the insured passes away within that term, the beneficiaries receive a death benefit. Once the term expires, the coverage ends, and there is no payout unless the term has been renewed or converted to a permanent policy. This structure differentiates term life insurance from other types of policies. Unlike whole life or universal life insurance, term life does not accumulate cash value or include investment components. Instead, it focuses solely on providing financial protection for a specific time frame, making it straightforward and often more affordable compared to permanent forms of life insurance. The distinction in duration is crucial; as the name suggests, "term" signifies that the insurance is time-bound rather than indefinite, which is a key characteristic of this insurance type.