Advanced Diploma of Financial Planning (ADFP) Practice Test

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Prepare for the Advanced Diploma of Financial Planning Test. Study with flashcards and multiple choice questions, receive explanations for each answer. Get exam-ready now!

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Which statement is correct regarding term life insurance?

It provides benefits only if the insured survives the term
It has no cash value and pays only upon death during the term
It is a type of whole life policy
It usually has higher premiums than cash value insurance

The correct answer is: It has no cash value and pays only upon death during the term

Term life insurance is designed to provide a death benefit to the beneficiaries if the insured passes away during the specified term of the policy. It has no cash value component, meaning that it does not accumulate savings or investment value over time like some permanent life insurance policies do. This characteristic makes it more straightforward and cost-effective. Since the policy only pays out if the insured dies within the set term and does not return any premiums or provide any cash value, it is accurate to say that term life insurance pays only upon death during the term and has no cash value accumulations. This feature makes it particularly appealing for individuals who need coverage for a specific period, such as while raising children or paying off a mortgage.