Rhode Island Life Insurance Practice Exam

What is a primary function of life insurance?

1. To provide tax benefits to the policyowner

2. To offer market investment returns

3. To replace lost income for dependents upon death

4. To act as a retirement fund

The correct answer is: To replace lost income for dependents upon death

The primary function of life insurance is to replace lost income for dependents upon the policyholder's death. This is a crucial aspect of financial planning, as life insurance provides a safety net for families or beneficiaries who might be dependent on the income of the deceased. In the event of the policyholder's passing, the insurance benefit can help cover daily living expenses, educational costs, and other financial obligations that the dependents may face, ensuring they can maintain their standard of living and financial stability. While other options may involve benefits related to life insurance, they do not capture the essence of its foundational purpose. For instance, tax benefits may be a consequence of owning a policy, but they are not the primary reason for obtaining life insurance. Similarly, while some life insurance products can have investment components or retirement benefits, these features are secondary to the fundamental role of providing financial support to loved ones in the event of death.