Washington Life Producer Practice Exam

What advantage does insurance provide to an insured individual?

1. Guaranteed investment returns

2. Protection against financial loss

3. Limited liability in business operations

4. Assets accumulation without risk

The correct answer is: Protection against financial loss

Insurance provides the advantage of protection against financial loss. This is a fundamental purpose of insurance: to transfer the risk of financial loss from the insured to the insurance company. When an individual purchases an insurance policy, they pay a premium in exchange for coverage that can help them recover from unexpected events, such as accidents, illnesses, property damage, or other liabilities. This financial safety net enables individuals to maintain their financial stability and manage risks effectively. The other choices, while they relate to different financial concepts, do not encapsulate the primary function of insurance as effectively. For example, guaranteed investment returns pertain more to investment contracts rather than insurance, limited liability in business operations refers to the protection of business owners from personal liability related to business debts or lawsuits, and asset accumulation without risk implies a non-risk investment strategy rather than the nature of insurance, which is fundamentally about risk management.