South Carolina Life Insurance Practice Exam

What is a primary function of life insurance?

1. To provide loans against cash value

2. To offer wealth accumulation

3. To provide financial protection for beneficiaries upon death

4. To serve as an investment product

The correct answer is: To provide financial protection for beneficiaries upon death

The primary function of life insurance is to provide financial protection for beneficiaries upon the death of the insured. This means that life insurance is designed to ensure that in the event of the policyholder's death, a designated amount of money is paid out to their beneficiaries, which can help cover expenses such as funeral costs, outstanding debts, and provide ongoing financial support for dependents. This protection is central to the purpose of life insurance, as it offers peace of mind to the policyholder, knowing that their loved ones will have financial support after their passing. While options such as providing loans against cash value or serving as an investment product may be features of certain types of life insurance (for instance, whole life policies with cash value), these aspects are ancillary and do not encapsulate the core purpose of life insurance. Similarly, wealth accumulation can be a benefit of some life insurance products, but it is not the primary intention. Instead, the key focus of life insurance remains providing a safety net for dependents through financial benefits upon the insured's death.