New Jersey Life and Health State Practice Exam

What is the primary purpose of life insurance?

1. To accumulate cash value over time

2. To provide financial support to beneficiaries after the insured's death

3. To cover medical expenses

4. To invest in mutual funds

The correct answer is: To provide financial support to beneficiaries after the insured's death

The primary purpose of life insurance is to provide financial support to beneficiaries after the insured's death. This is essentially a means of ensuring that loved ones are financially protected in the event of the policyholder's passing. Life insurance pays out a death benefit to designated beneficiaries, which can help cover everyday living expenses, mortgage payments, education costs, or any other financial obligations that the policyholder may have left behind. While there are various types of life insurance products, some of which may accumulate cash value or serve as investment vehicles, these functions are secondary to the core purpose of providing a security net for the insured's beneficiaries. Other options, such as covering medical expenses or investing in mutual funds, do not align with the fundamental intent of life insurance, which is specifically designed to mitigate the financial impact on surviving family members after the individual’s death.