PSI Life Exam Practice Test 2025 - Free Life Insurance Exam Questions and Study Guide

Term insurance is best defined as coverage that is active for a specified duration. This type of insurance is designed to provide financial protection for a predetermined period, such as 10, 20, or 30 years. During this term, if the insured individual passes away, the insurer pays a death benefit to the beneficiaries. However, if the term expires and the insured is still alive, the coverage ends, and there is typically no payout.

This structure is what differentiates term insurance from permanent life insurance, which is designed to last for the insured's lifetime and may also have a cash value component. The fact that term insurance only provides coverage for a specific period makes it a more affordable option for many individuals looking for temporary protection.

The other options describe characteristics that do not apply to term insurance. For instance, the notion of insurance lasting indefinitely relates more to permanent insurance types. Similarly, a fixed payout over time is more indicative of certain investment or annuity products rather than the essence of term coverage. Lastly, a combination of life and disability coverage may refer to policies that address multiple types of risks but does not align with the primary feature of term insurance.