Future Business Leaders of America (FBLA) Personal Finance Practice Test

Which of the following statements about life insurance is accurate?

1. It is only necessary for those with families

2. It can serve as an investment tool

3. Term life insurance is the same as whole life insurance

4. Life insurance is required by law

The correct answer is: It can serve as an investment tool

The statement indicating that life insurance can serve as an investment tool is accurate. Certain types of life insurance, particularly whole life insurance and universal life insurance, not only provide a death benefit but also accumulate cash value over time. This cash value component can grow at a guaranteed rate and can be used during the policyholder's lifetime. Policyholders may borrow against the cash value, withdraw funds, or even use it to pay premiums. This dual function makes life insurance not just a safety net for beneficiaries but also a potential financial asset for the policyholder. In contrast, term life insurance is strictly focused on providing coverage for a specific term, with no cash value accumulation. The idea that life insurance is only necessary for those with families is too narrow because individuals without dependents might still require life insurance for debts, business partnerships, or legacy planning. Moreover, life insurance is not required by law, although certain situations, like having a mortgage or business loans, may encourage individuals to consider obtaining it.