Question

A man decided to purchase a $100,000 Annually Renewable Term Life policy to provide additional protection until his children finished college. He discovered that his policy ________?

A) Accumulates cash value over time.
B) Provides coverage for a fixed number of years.
C) Offers a death benefit that increases annually.
D) Allows him to borrow against the policy.

Answer 1

B) Provides coverage for a fixed number of years.

The Annually Renewable Term Life policy provides coverage for a fixed number of years without accumulating cash value or allowing borrowing against the policy.

Step-by-step explanation:

The man's Annually Renewable Term Life policy, as its name suggests, does not accumulate cash value over time. Instead, what it does is provide a level death benefit that does not increase annually.

Unlike whole or universal life insurance policies, a term policy like the one in question does not have any investment component and therefore does not allow the insured to borrow against the policy.

Thus, the correct answer is that it provides coverage for a fixed number of years, typically with a premium that increases annually as the policy is renewed.