California Life and Health Insurance Practice Exam

What does the phrase "Life insurance creates an immediate estate" imply?

1. It provides coverage for a fixed term

2. It means a death benefit is paid when the insured dies

3. It allows investment growth over time

4. It ensures lifelong coverage of the insured

The correct answer is: It means a death benefit is paid when the insured dies

The phrase "Life insurance creates an immediate estate" implies that when an insured individual passes away, the life insurance policy pays out a death benefit to the beneficiaries almost instantly. This payment acts as an estate that the beneficiaries receive, which can be used to cover expenses such as funeral costs, debts, or providing financial support to family members. The term "immediate estate" emphasizes that the financial security provided by the life insurance policy takes effect quickly upon the death of the insured. While other options may describe aspects of life insurance, they do not capture this specific meaning. For instance, some policies do provide coverage for a fixed term, allow investment growth, or ensure lifelong coverage, but these features do not directly relate to the immediate financial impact that occurs when a policyholder passes away. Therefore, the correct interpretation revolves around the prompt payment of the death benefit that affords security to beneficiaries, thereby creating an immediate estate.