Question

The following are all true of term insurance except:

a. Coverage or term of the policy is for a fixed length.
b. Death Benefit will be of a reduced amount after the policy term.
c. Policy has no cash value component.
d. Often the premium is level over the term of the policy.

Answer 1

The incorrect statement about term insurance is that the death benefit will reduce after the policy term. The death benefit remains the same during the term, and the policy has no cash value component but often has a level premium.

Step-by-step explanation:

The student's question regarding term insurance is seeking clarification on which statement is not characteristic of term life insurance policies. Among the given options, the incorrect statement is that the death benefit will be of a reduced amount after the policy term. In term insurance, the death benefit is a set amount paid out if the insured person dies within the term of the policy.

Option (b) is therefore incorrect because the death benefit does not decrease after the policy term; instead, the policy simply expires if the term ends and the insured person is still alive. It's essential to note that term insurance differs from cash-value life insurance policies, which can accumulate a cash value and may offer the policyholder an option to borrow against the policy.

In contrast, term policies do not accumulate any cash value (Option c). The premium in a term insurance policy is typically level (Option d), meaning it stays the same throughout the term.