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 to a 40-year-old. Which description best fits this product?

Term life insurance pays a death benefit only if the insured dies within the stated term, here 20 years, and generally accumulates no cash value. Whole life, by contrast, covers death at any age and builds cash value, so it is a different product.

  1. AIt pays the death benefit only if the policyholder dies within the 20-year term and builds no cash valueCorrect
  2. BIt pays the death benefit whenever the policyholder dies and accumulates a cash surrender value
  3. CIt pays a regular income to the policyholder for as long as they live after the term ends
  4. DIt pays the face amount at the end of 20 years only if the policyholder is still alive

Explanation

Term life insurance provides pure protection for a fixed period. A benefit is paid only if death occurs during the term, and there is typically no cash value. Whole life covers death at any time and builds cash value, which is why option B is wrong.

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