Other Than Life (OTL) Practice Exam

What is a defining characteristic of temporary insurance?

1. It is always issued for an indefinite term

2. It is limited to a fixed term

3. It allows for automatic renewals

4. It must be paid annually

The correct answer is: It is limited to a fixed term

Temporary insurance is characterized primarily by its limited duration. It is typically issued for a specific, fixed term, such as a few months to a couple of years, focusing on providing coverage during that designated time frame. This type of insurance often serves as a short-term solution for individuals who need coverage while they await another policy to take effect or while assessing their longer-term insurance needs. The aspect of being limited to a fixed term distinguishes it from other types of insurance, such as permanent insurance, which offers coverage for the lifetime of the insured. Temporary insurance does not typically extend or allow for automatic renewals, making the understanding of its finite nature critical in evaluating risk and determining financial planning strategies. Additionally, while payment structures can vary, the defining characteristic relates predominantly to its set term rather than the specific frequency or method of payment.