California Life and Health Insurance Practice Exam

Which type of policy typically has a lower premium but no cash value?

1. Whole life insurance

2. Term life insurance

3. Universal life insurance

4. Variable life insurance

The correct answer is: Term life insurance

Term life insurance is known for offering a lower premium compared to other life insurance policies because it provides coverage only for a specific period, such as 10, 20, or 30 years. Unlike whole life or universal life insurance, which accumulate cash value over time, term life insurance strictly pays out a death benefit if the insured passes away within the specified term. This structure allows for lower premiums, making term life insurance an attractive option for individuals seeking affordable coverage without the complexities associated with cash value accumulation. The other types of policies—whole life, universal life, and variable life—are designed to build cash value, which results in higher premiums. This cash value can be accessed while the policyholder is alive, serving as a savings component; however, it is not a feature of term life insurance, which is one of its defining characteristics. Thus, the lower premium combined with the absence of cash value makes term life insurance the correct type of policy described in the question.