New Jersey Life Producer Practice Exam

Which type of insurance is most suitable for estate planning purposes?

1. Term Life Insurance

2. Whole Life Insurance

3. Universal Life Insurance

4. Variable Life Insurance

The correct answer is: Whole Life Insurance

Whole Life Insurance is particularly suitable for estate planning purposes because it provides a guaranteed death benefit and a cash value component that grows over time. This feature is significant in estate planning, as it ensures that heirs receive a predictable and guaranteed amount upon the policyholder's death, which can be used to cover estate taxes or settle other financial obligations. Additionally, the cash value of Whole Life Insurance can be accessed during the policyholder's lifetime, providing liquidity if needed. The insurance's permanence—providing coverage for the entire life of the insured—as opposed to only a specified term, makes it a reliable tool for ensuring that an estate can be passed on without financial burdens. This stability and predictability offer peace of mind when planning for the future needs of beneficiaries. The other types of insurance, while having their own advantages, may not provide the same level of certainty and benefit when specifically considering estate planning. Term Life, for instance, may not be permanent, and Universal and Variable Life Insurance include more variability in their death benefits and cash value depending on market factors, making them less predictable for estate needs.