South Carolina Life Insurance Practice Exam

Which of the following is NOT considered a legitimate need for insurance proceeds?

1. Medical expenses

2. Home mortgage repayment

3. Luxury goods purchases

4. Funeral expenses

The correct answer is: Luxury goods purchases

The determination that purchasing luxury goods is not a legitimate need for insurance proceeds is based on the fundamental purpose of life insurance. Life insurance is primarily designed to provide financial support to beneficiaries following the death of the insured. Legitimate needs typically include expenses that arise from loss of income, unexpected costs, or financial obligations that the insured would have covered if they were still alive. Medical expenses, home mortgage repayment, and funeral expenses are all critical financial obligations that may arise after a person’s death. Medical expenses can include costs related to healthcare leading up to and immediately following death. Home mortgage repayments help to ensure that the family can maintain their home without financial hardship. Funeral expenses are a necessary part of handling the deceased’s affairs, often requiring immediate funds to cover burial or cremation costs. In contrast, luxury goods purchases do not represent an essential need when it comes to financial stability or maintaining the quality of life for dependents. They are discretionary expenditures and do not address the immediate financial responsibilities or emotional support needs that arise after the loss of income from the deceased. Therefore, utilizing insurance proceeds to fund luxury purchases is viewed as outside the scope of what life insurance is intended to cover.