Maryland Life and Health Insurance License Practice Exam

What does the term 'level' refer to in Level Term insurance?

1. The premiums remain constant throughout the policy

2. The death benefit remains the same

3. The duration of the policy is fixed

4. The policy can be converted to a permanent policy

The correct answer is: The death benefit remains the same

In Level Term insurance, the term 'level' primarily refers to the death benefit remaining the same throughout the duration of the policy. This means that regardless of the passage of time or when the insured individual passes away during the policy term, the beneficiaries will receive the agreed-upon amount of coverage. This feature provides peace of mind to policyholders, ensuring that their beneficiaries will receive a specified, unchanging sum in the event of the insured's death, allowing for better financial planning. Since the death benefit is not designed to decrease during the term of the policy, it contrasts with other types of insurance products where the death benefit may vary over time. While constant premiums and fixed policy duration are important aspects of Level Term insurance, the defining characteristic captured by 'level' focuses primarily on the consistency of the death benefit throughout the policy’s term.