California Life and Health Insurance Practice Exam

What is the primary purpose of life insurance?

1. To accumulate cash value

2. To provide financial protection for beneficiaries

3. To minimize tax liability

4. To fund retirement

The correct answer is: To provide financial protection for beneficiaries

The primary purpose of life insurance is to provide financial protection for beneficiaries. Life insurance serves as a security measure, ensuring that in the event of the policyholder's death, their designated beneficiaries receive a death benefit. This financial support can help cover various expenses that may arise, such as funeral costs, outstanding debts, and living expenses, allowing beneficiaries to maintain their standard of living without the financial burden that the death of a loved one can bring. While accumulating cash value, minimizing tax liability, and funding retirement can be associated benefits or considerations in certain types of life insurance policies, they do not represent the fundamental reason for purchasing life insurance. The main objective remains the provision of financial security for those left behind, ensuring they are supported during a difficult time.