CFP (Certified Financial Planner) Practice Questions — All Questions

The primary purpose of life insurance is to:

• a.Build the largest possible investment
• b.Replace income or provide for dependents on death✓
• c.Avoid all taxes
• d.Guarantee stock gains

Life insurance provides financial protection for dependents upon the insured's death.

Disability income insurance protects against:

• a.Loss of income due to inability to work from illness or injury✓
• b.Property damage
• c.A car accident's liability
• d.Estate taxes

Disability insurance replaces income when one cannot work due to disability.

Insurance fundamentally works by:

• a.Guaranteeing profit
• b.Eliminating all risk
• c.Pooling and transferring risk among many policyholders✓
• d.Investing in stocks only

Insurance pools risk across many, transferring individual risk to the insurer.

A deductible in a policy is:

• a.The insurer's profit
• b.A type of dividend
• c.The premium
• d.The amount the insured pays before coverage applies✓

The deductible is the insured's out-of-pocket amount before the insurer pays.