Skip to content

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

A life insurer sells a 20-year term life policy and a whole life policy to otherwise identical 40-year-old non-smokers with the same face amount. Which statement correctly describes the difference between the two products?

Term insurance pays only if the insured dies within the specified term and normally builds no cash value, while whole life covers the insured for life and typically accumulates cash value. Term is pure protection; whole life combines lifelong protection with a savings element.

  1. ATerm insurance pays a benefit only if death occurs within the stated term and builds no cash value, whereas whole life covers the insured's entire life and typically accumulates cash valueCorrect
  2. BTerm insurance always pays a benefit at the end of the term if the insured survives, whereas whole life pays only on death
  3. CWhole life premiums rise each year with the insured's age, whereas term premiums are fixed for life
  4. DWhole life policies provide coverage only until retirement age, whereas term policies cover the entire life

Explanation

Term insurance is pure protection for a specified period: no death in the term means no payout and no cash value. Whole life covers the entire lifetime and usually includes a savings component (cash value). The distractor stating term pays on survival confuses term with an endowment.

Did you get it right without looking?

One question tells you little. A timed set on Insurance Companies and Pension Plans shows your real accuracy, how long you take and where you lose marks.

Practise Insurance Companies and Pension PlansFree diagnostic mock

More Insurance Companies and Pension Plans questions