University of Central Florida (UCF) FIN2100 Personal Finance and Investments Midterm 2 Practice Exam

Term insurance is best described as insurance for a specified period of time. This type of life insurance provides coverage for a set duration, such as 10, 20, or 30 years, depending on the policyholder's needs. During this time, if the insured person dies, the beneficiaries receive the death benefit. However, if the term expires and the insured outlives that period, the policy typically has no value, meaning there is no payout or accumulation of cash value.

This characteristic distinguishes term insurance from whole life or universal life insurance, which provide coverage for the insured's entire lifetime and often accumulate cash value over time. The focus of term insurance is affordability and simple coverage rather than investment or savings components. Therefore, it serves as a cost-effective solution for those who need life insurance for specific financial responsibilities, such as covering a mortgage or providing for dependents until they are financially independent.