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

A term life insurance policy is defined by its provision of coverage for a specific term or period. This means it is designed to pay a death benefit only if the insured passes away during the stipulated term, which typically ranges from one to thirty years. At the end of the term, the coverage expires, and there is no payout unless the insured dies within that designated timeframe.

The nature of term life insurance focuses solely on providing a death benefit during the agreed period. This differentiates it from whole life or universal life policies that build cash value over time. Additionally, while some term policies may offer options for renewal or conversion to permanent insurance, it is not an inherent characteristic of all term policies. Regarding dividends, term life insurance does not pay dividends as it is a pure insurance product without any investment components, unlike certain whole life policies that may share surplus profits with policyholders. Thus, the defining trait of a term life insurance policy is its finite duration of coverage.