CMFAS Life Insurance M5 — Questions and Answers
Question 1: What is the primary purpose of life insurance?
- To generate investment returns
- To provide financial protection to dependents upon the insured's death (Correct answer)
- To avoid paying taxes
- To save for retirement
Correct answer: To provide financial protection to dependents upon the insured's death
The primary purpose of life insurance is to provide financial protection by paying a benefit to the insured's beneficiaries upon death.
Question 2: What is a term life insurance policy?
- A permanent insurance policy
- A policy that provides coverage for a specific period only (Correct answer)
- A policy that covers all types of risks
- A savings plan
Correct answer: A policy that provides coverage for a specific period only
Term life insurance provides coverage for a fixed period (e.g., 10, 20, or 30 years). If the insured dies during the term, the beneficiary receives the death benefit.
Question 3: What is a whole life insurance policy?
- A policy that expires at age 65
- A policy that provides lifelong coverage and may accumulate cash value (Correct answer)
- A short-term policy
- A policy that only covers accidents
Correct answer: A policy that provides lifelong coverage and may accumulate cash value
Whole life insurance provides coverage for the insured's entire lifetime and typically includes a savings component that builds cash value over time.
Question 4: What is the difference between the policyholder and the insured?
- They are always the same person
- The policyholder owns the policy; the insured is the person whose life is covered (Correct answer)
- The insured pays the premiums
- There is no difference
Correct answer: The policyholder owns the policy; the insured is the person whose life is covered
The policyholder owns the policy and pays premiums. The insured is the person whose life is covered. They can be different people.
Question 5: What is a premium in life insurance?
- The benefit paid upon death
- The amount paid periodically to keep the insurance policy in force (Correct answer)
- The surrender value of a policy
- A bonus payment
Correct answer: The amount paid periodically to keep the insurance policy in force
A premium is the regular payment (monthly, quarterly, or annually) made by the policyholder to the insurance company to maintain coverage.
Question 6: What is a beneficiary in a life insurance policy?
- The insurance company
- The person designated to receive the death benefit (Correct answer)
- The insurance agent
- The policyholder
Correct answer: The person designated to receive the death benefit
A beneficiary is the person or entity designated by the policyholder to receive the insurance proceeds upon the insured's death.
CMFAS Life Insurance M5
What is the primary purpose of life insurance?