Washington Life Producer Practice Exam

What is the primary purpose of life insurance?

1. To provide a return on investment

2. To replace lost income for beneficiaries upon the policyholder's death

3. To cover medical expenses during illness

4. To pay off personal debt

The correct answer is: To replace lost income for beneficiaries upon the policyholder's death

The primary purpose of life insurance is to replace lost income for beneficiaries upon the policyholder's death. This type of coverage is designed to provide financial security and support to the dependents or loved ones of the insured, alleviating the financial burden that may arise in the aftermath of the policyholder's passing. It ensures that the family can maintain their standard of living, cover everyday expenses, and fulfill financial obligations, such as mortgage payments and education costs. While other options do have their relevance in certain contexts, they do not capture the fundamental objective of life insurance. For example, the idea of providing a return on investment leans more toward investment products like universal life insurance, but such a factor is secondary to the primary function of financial protection against loss of income. Covering medical expenses relates more directly to health insurance rather than life insurance, which focuses on the financial implications of the policyholder's death. Paying off personal debt can be an outcome of having life insurance, but again, it is a specific application of the proceeds used primarily to support dependents rather than being the central purpose of the insurance itself. Thus, the choice emphasizing income replacement aligns most closely with the core intent of life insurance.