West Virginia State Life Insurance Practice Exam

Which of the following is a primary purpose of life insurance?

1. To build cash value over time

2. To mitigate risks associated with investments

3. To provide financial protection to beneficiaries upon death

4. To serve as a tax shelter for high-income earners

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

The primary purpose of life insurance is to provide financial protection to beneficiaries upon the death of the insured. This means that when the policyholder passes away, the insurance company pays out a death benefit to the designated beneficiaries. This benefit can help cover various expenses, such as funeral costs, outstanding debts, and everyday living expenses for the family, ensuring that the insured's loved ones are financially supported during a difficult time. While there may be other advantages to having life insurance, such as potential cash value accumulation or tax benefits, these features serve as secondary benefits rather than the main objective of the policy. The essential function of life insurance is to offer financial security and peace of mind, knowing that the insured’s family can maintain their financial stability in the event of an untimely death.