Term vs. Whole Life for the Exam: How to Tell Policies Apart
Exam-focused comparison of term, whole, universal and variable life by premium, death benefit and cash value — the three features the questions test.
Policy-type questions are built so that every wrong answer describes a real, neighboring product. The reliable way through is to know each product by three features: how premiums behave, how the death benefit behaves, and whether there is cash value.
Term life
- Temporary protection for a stated period; no cash value.
- Level term keeps the face amount level; decreasing term reduces it over time (commonly paired with a mortgage).
- Renewable term can be continued without new evidence of insurability, at a higher premium on renewal; convertible term can be exchanged for permanent coverage without evidence of insurability.
Whole life
- Permanent protection with guaranteed cash value.
- Ordinary (straight) whole life: level premiums payable for life.
- Limited-pay whole life: premiums compressed into a set period — coverage still lasts for life.
- Single-premium whole life: one premium funds the policy.
Universal and variable life
- Universal life: flexible premiums and an adjustable death benefit, with cash value credited with interest.
- Variable life: cash value invested in separate accounts chosen by the owner; values can fall. It is a security, so selling it requires a securities registration in addition to the insurance license.
- Variable universal life combines the flexibility of universal life with separate-account investing.
Exam habit: when a question gives you a scenario, name the three features it describes before you look at the options. The right product is usually obvious once the features are named.
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