In a term life insurance policy, the insurer's limit of liability is best described as:
Select an option to reveal the answer and the full 3-part explanation — free, no signup.
Answer & full 3-part explanation (select an option above, or peek)
Why A is correct
A term policy provides temporary protection: the insurer agrees to pay the stated face amount (death benefit) only if the insured dies within the specified policy period or term. The policy contains no cash value and no permanent reserve, so the insurer's limit of liability is exactly the face amount, and that liability exists only during the term. Once the term expires without conversion or renewal, the coverage and the insurer's liability end. This distinguishes term coverage from permanent policies, where liability continues for life and a cash value component exists.
Why the other options are wrong
- B) Premiums plus interest describes an accumulation fund, not the obligation of a term contract; term insurance pays a stated face amount on death during the term.
- C) Term policies generally build no cash value, so the death benefit is not tied to any cash value figure.
- D) Renewability merely preserves the right to continue coverage at the end of a term; it does not extend the insurer's liability beyond the terms actually in force, and the liability remains capped at the face amount.
Memory hook
Term = time-boxed liability: face amount on the table, but only while the term is running.