South Carolina Insurance Practice Exam

A life insurance policy that has premiums fully paid up within a stated time period is called?

1. Whole life insurance

2. Limited payment insurance

3. Term life insurance

4. Endowment policy

The correct answer is: Limited payment insurance

Limited payment insurance refers to a type of life insurance policy wherein the insured pays premiums for a specific, predetermined period, after which the policy is considered fully paid up. This means that no further premium payments are required, yet the coverage remains in force for the duration of the insured's life. This structure allows policyholders to enjoy the benefits of permanent life insurance, like cash value accumulation and lifelong coverage, while also making payments more manageable over a defined timeframe rather than throughout their entire life. Whole life insurance is also a type of permanent insurance but typically requires ongoing premiums throughout the insured's lifetime rather than having a set period for payment. Term life insurance, on the other hand, provides coverage for a specified term but does not accumulate cash value and does not have the same payment structure as limited payment insurance. An endowment policy pays a benefit after a specified period or upon the death of the insured, but it does not adhere to the concept of fully paid premiums within a specific timeframe like limited payment insurance does.