What is a key characteristic of a term life insurance policy?

A key characteristic of a term life insurance policy is that it provides coverage for a specific period. This means that the insurance is in effect for a predetermined duration, which can vary from one to thirty years, depending on the policy. If the insured passes away during this period, the beneficiaries will receive a death benefit. However, if the insured outlives the term, the coverage ends, and there is no cash value accumulated.

Term life insurance is particularly appealing for those who need coverage for a specific financial obligation, such as a mortgage or raising children, and is often more affordable than permanent life insurance options because it does not have a cash value component. This structure allows policyholders to secure a significant amount of coverage for their beneficiaries at a lower premium compared to whole life or universal life policies.

In contrast, other options provided would not accurately describe the characteristics of a term life insurance policy. For example, building cash value pertains to whole life or universal life policies, which accumulate savings over time. Flexible premium payments are also associated with certain types of permanent insurance but are not a typical feature of term life policies. Lastly, while medical underwriting may occur at the initiation of the policy, it is not a specific requirement each year for term life insurance.