Future Business Leaders of America (FBLA) Personal Finance Practice Test

What type of life insurance covers an individual for a specific period of time?

1. Whole life insurance

2. Universal life insurance

3. Term life insurance

4. Variable life insurance

The correct answer is: Term life insurance

Term life insurance is designed to provide coverage for a specific period, typically ranging from one to thirty years. This insurance pays a death benefit to the designated beneficiaries if the insured individual passes away during the term. The key characteristics of term life insurance include its affordability compared to other types of life insurance, and it usually does not accumulate any cash value. In contrast, whole life insurance covers the insured for their entire lifetime, providing consistent premiums and a cash value component. Universal life insurance offers flexibility in premium payments and death benefits but also provides lifetime coverage. Variable life insurance combines a death benefit with an investment savings account, allowing the policyholder to allocate funds among different investment options, while also offering lifelong coverage. Therefore, term life insurance is unique in its focus on providing coverage strictly for a defined term, making it the correct answer.