Chartered Life Underwriter Practice Exam 2026 - Free CLU Practice Questions and Study Guide

The distinguishing feature of term life insurance is that it provides coverage for a specified period. This means that the policyholder chooses a specific term, such as 10, 20, or 30 years, during which the insurance coverage is in effect. If the insured individual passes away within that time frame, the death benefit is paid out to the beneficiaries. However, once the term expires, the coverage ends, and there is no payout unless the policyholder chooses to renew the term or convert it to a different policy.

In contrast, whole life insurance offers coverage for the insured's entire lifetime, as long as premiums are paid. It combines a death benefit with a cash value component that grows over time. This fundamental difference in the duration and structure of the coverage is what notably sets term life insurance apart from whole life insurance.

While whole life insurance typically has a higher premium compared to term life insurance due to its permanent coverage and cash value accumulation, this aspect is not the defining characteristic of each type. The statement regarding convertibility is also not exclusive to whole life insurance, as many term policies can also have conversion options. Thus, the main distinction is the specific period of coverage provided by term life insurance.