South Carolina Life Insurance Practice Exam

Which of the following is NOT a purpose of life insurance policies?

1. Providing a death benefit

2. Building cash value

3. Covering future medical expenses

4. Paying off debts

The correct answer is: Covering future medical expenses

Life insurance policies are primarily designed to provide financial protection for beneficiaries upon the policyholder's death. One of the main purposes is to offer a death benefit, which is the amount paid to the beneficiaries when the insured person passes away. This benefit helps to replace lost income, pay for funeral expenses, and serve various financial needs of the family left behind. Building cash value is another aspect of certain life insurance policies, especially permanent life insurance types, such as whole life and universal life. The cash value component grows over time and can be borrowed against or withdrawn, providing an additional financial resource during the policyholder's lifetime. Paying off debts is also a significant purpose, as the death benefit can be utilized by beneficiaries to settle any outstanding debts like mortgages, loans, or credit card balances, ensuring that the deceased’s financial obligations do not burden the family. Covering future medical expenses, however, is not a primary purpose of life insurance. While certain health-related expenses may be associated with life insurance in terms of underwriting or implications for coverage, life insurance itself does not serve as a tool for managing or paying for future medical costs. Instead, products like health insurance are designed specifically to address medical expenses. Thus, the correct choice accurately identifies the option that does