Level Term

Priya Raghunathan buys a 20-year level term policy with a $750,000 face amount to cover her mortgage and her children's college years. In a level term policy:

1. A.The premium and death benefit stay constant for the termCorrect - level premium and level benefit.
2. B.Cash value grows rapidlyNo term policy accumulates meaningful cash value. The premium covers the cost of protection for the period, with nothing set aside to build up.
3. C.The premium rises annuallyThis describes annually renewable term, where the cost climbs at each renewal. The design named in the stem holds the premium steady across the whole period, which is its main selling point.
4. D.The death benefit decreases each yearThis describes decreasing term, typically matched against a shrinking debt. Here the face amount holds steady from beginning to end.

Why: Level term keeps both the premium and the death benefit constant throughout the term.

Return-of-premium term insurance:

1. A.Builds large cash value like whole lifeConfuses a premium refund at the end of the term with genuine cash-value accumulation. Return-of-premium coverage costs more and repays premiums to a surviving insured, but it is still term insurance; any interim surrender value follows a limited schedule rather than the growing account of a whole life policy.
2. B.Never expiresReads the refund feature as permanence. Return-of-premium coverage is term insurance with a defined level period, and the refund happens precisely because that period ends with the insured still living.
3. C.Pays double at deathDescribes an accidental death benefit rider, not the return-of-premium feature. The refund is paid to the living policyowner when the term expires; it does not change what a beneficiary receives if the insured dies.
4. D.Refunds premiums if the insured outlives the termCorrect - premiums returned at term end if alive.

Why: ROP term refunds the premiums paid if the insured survives the level term period.

Camila Restrepo, 34, buys a 20-year level term life insurance policy with a $750,000 death benefit. Fifteen years later she asks her adviser how much she could borrow against the policy's accumulated value. The correct answer is:

1. A.The full $750,000 death benefit, since level term policies are fully paid up after 15 yearsLevel term is never paid up. The coverage ends at the end of the term with no residual value.
2. B.Up to the total premiums she has paid over the 15 years, less any policy feesPremiums paid are not a cash value. They purchased coverage for the years that have elapsed.
3. C.Up to 90% of the policy's cash surrender value, which accumulates in every life policyCash surrender value is a feature of permanent policies, not of term coverage.
4. D.Nothing, because term insurance builds no cash value and provides only a death benefit during the termCorrect. There is no cash value in a term policy, so there is nothing to borrow against.

Why: Term insurance is pure death benefit protection for a stated period. It builds no cash value, so there is nothing to borrow against, nothing to surrender, and no living benefit if the insured outlives the term. Level term simply means the premium and death benefit stay level during the term; it does not mean value accumulates. The clue is that she is asking about accumulated value in a term policy. Permanent policies such as whole life or universal life are where cash value builds. Review term versus permanent insurance.

A 100,000-dollar 20-year level term policy provides:

1. A.A premium that rises yearlyDescribes annually renewable term. The point of the level design is that the insurer averages the rising mortality cost across the whole period so the payment does not move.
2. B.A benefit that decreases yearlyDescribes decreasing term, which is often written to track a mortgage balance. Level means level on both sides of the contract: the face amount holds steady for the entire period.
3. C.Lifetime coverageReads the stated period as the start of permanent protection. Term coverage ends when the period ends, and the insurer owes nothing beyond it unless the owner renews or converts.
4. D.A level 100,000 benefit and level premium for 20 yearsCorrect - level benefit and premium.

Why: Level term keeps both the death benefit (100,000) and the premium level for the 20-year term.