CFP (Certified Financial Planner) Practice Questions — All Questions

The primary purpose of life insurance is to:

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

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

Disability income insurance protects against:

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

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

Insurance fundamentally works by:

• a.Eliminating all risk
• b.Pooling and transferring risk among many policyholders✓
• c.Guaranteeing profit
• 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.The amount the insured pays before coverage applies✓
• c.The premium
• d.A type of dividend

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