What is the difference between term life and whole life insurance?

What is the difference between term life and whole life insurance?

• A. Term provides coverage for a period; whole life builds cash value and has higher premiums.
• B. Term life builds cash value; whole life expires after a fixed term.
• C. Term life has cash value and fixed premiums; whole life expires later.
• D. Term life is for mortgage protection; whole life is for retirement income.

Answer: (A)

The difference being tested is how term life and whole life differ in coverage duration and cash value. Term life offers protection for a fixed number of years and generally has no cash value—you pay premiums for that term, and if you die within the term, the death benefit goes to beneficiaries; if the term ends, the policy may expire or be renewed with no payout unless you buy a new policy. Whole life provides lifelong coverage and includes a cash value that grows over time, funded by higher, typically level premiums. The option describes term life covering a period and whole life building cash value with higher premiums, which matches how these policies actually work. The other statements mix up cash value and duration: term life does not accumulate cash value, and whole life does not expire after a fixed term.

The difference being tested is how term life and whole life differ in coverage duration and cash value. Term life offers protection for a fixed number of years and generally has no cash value—you pay premiums for that term, and if you die within the term, the death benefit goes to beneficiaries; if the term ends, the policy may expire or be renewed with no payout unless you buy a new policy. Whole life provides lifelong coverage and includes a cash value that grows over time, funded by higher, typically level premiums. The option describes term life covering a period and whole life building cash value with higher premiums, which matches how these policies actually work. The other statements mix up cash value and duration: term life does not accumulate cash value, and whole life does not expire after a fixed term.