South Carolina Insurance Practice Exam

What term describes an insurance policy that provides a fixed death benefit and fixed premiums for the life of the insured?

1. Term life insurance

2. Whole life insurance

3. Universal life insurance

4. Variable life insurance

The correct answer is: Whole life insurance

Whole life insurance is a type of permanent life insurance that is designed to provide coverage for the entire lifetime of the insured, as long as premiums are paid. This policy guarantees a fixed death benefit, meaning that the amount paid to beneficiaries upon the insured’s death is predetermined and does not change. Additionally, whole life insurance comes with fixed premiums, which stay the same throughout the life of the policyholder, making it easy to budget for those payments. In contrast, term life insurance provides coverage for a specific period and does not build cash value; it only pays out the death benefit if the insured dies within that term. Universal life insurance offers flexibility in premium payments and death benefits, which can change over time, and may accumulate cash value based on current interest rates. Variable life insurance allows the policyholder to invest cash value in different investment options, leading to fluctuating cash value and death benefits. Each of these alternatives has different characteristics and may suit varying needs, but none provide the guarantees associated with whole life insurance.