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FRM Part I · FRM Exam Part I · Insurance Companies and Pension Plans

A 10-year term life insurance policy pays a death benefit only if the insured dies within 10 years of issue and pays nothing if the insured survives the term. Which feature best describes this product compared with whole life insurance?

Term life insurance provides pure death protection for a limited period and generally builds no cash value. Whole life, by contrast, covers the insured for life and accumulates a cash surrender value, so the cash value option describes whole life rather than term insurance.

  1. AIt has no savings or cash value component and provides pure death protection for a limited periodCorrect
  2. BIt accumulates a cash surrender value that grows over the life of the policyholder
  3. CIt pays a benefit in all circumstances, whenever death occurs
  4. DIt pays the policyholder an annuity if they survive the term

Explanation

Term insurance covers death only during a stated period and typically builds no cash value. Whole life covers the insured for life and accumulates cash value, so the option describing cash value growth describes whole life, not term.

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