What is the primary purpose of a life insurance policy?

What is the primary purpose of a life insurance policy?

• A. Wealth accumulation
• B. Income replacement
• C. Tax evasion
• D. Investment growth

Answer: (B)

The primary purpose of a life insurance policy is income replacement. Life insurance is designed to provide financial protection to the beneficiaries in the event of the policyholder's death. It ensures that dependents, such as children or a spouse, can maintain their standard of living even after the loss of the policyholder's income. This financial support can help cover everyday expenses, debts, and future needs like education costs, allowing the family to continue their lives without drastic financial changes. While wealth accumulation and investment growth may be secondary benefits in some types of life insurance products, such as whole or universal life policies, they do not represent the fundamental purpose of life insurance. Moreover, tax evasion is not a valid or lawful purpose of life insurance. Life insurance can provide tax advantages, such as tax-free death benefits, but using it to evade taxes is not an appropriate or legal use of such a policy. Thus, the focus on income replacement highlights the essential role life insurance plays in safeguarding the financial well-being of loved ones after a loss.

The primary purpose of a life insurance policy is income replacement. Life insurance is designed to provide financial protection to the beneficiaries in the event of the policyholder's death. It ensures that dependents, such as children or a spouse, can maintain their standard of living even after the loss of the policyholder's income. This financial support can help cover everyday expenses, debts, and future needs like education costs, allowing the family to continue their lives without drastic financial changes.

While wealth accumulation and investment growth may be secondary benefits in some types of life insurance products, such as whole or universal life policies, they do not represent the fundamental purpose of life insurance. Moreover, tax evasion is not a valid or lawful purpose of life insurance. Life insurance can provide tax advantages, such as tax-free death benefits, but using it to evade taxes is not an appropriate or legal use of such a policy. Thus, the focus on income replacement highlights the essential role life insurance plays in safeguarding the financial well-being of loved ones after a loss.