Rhode Island Life Insurance Practice Exam

What is the primary purpose of life insurance?

1. To accumulate savings and investments

2. To provide financial protection for dependents

3. To pay off debts only

4. To secure loans against future income

The correct answer is: To provide financial protection for dependents

The primary purpose of life insurance is to provide financial protection for dependents. This means that in the event of the policyholder's death, the life insurance policy will pay out a sum of money to the designated beneficiaries. This financial support can help cover everyday living expenses, ongoing financial obligations, and educational costs for children, ensuring that the family or dependents are not left in financial distress. While other options may touch on aspects of life insurance or financial planning, they do not capture the core function of life insurance itself. Accumulating savings and investments is generally associated with other financial products, such as savings accounts or investment vehicles, rather than life insurance. Similarly, while life insurance can indeed contribute to paying off debts, this is not its primary purpose; rather, it serves as a safety net for those left behind. Lastly, securing loans against future income is an unrelated concept, as life insurance is primarily aimed at providing immediate financial support in the face of loss rather than loan security. Thus, the focus on financial protection for dependents solidifies why this is the correct understanding of life insurance's main objective.