Accredited Wealth Management Advisor Practice Exam

Who benefits directly from life insurance policies used in informal funding?

1. The employee’s estate.

2. The employer’s operating budget.

3. The employee’s family or beneficiary.

4. The insurance company.

The correct answer is: The employee’s family or beneficiary.

Life insurance policies used in informal funding are primarily designed to provide financial protection to specific individuals upon the death of the insured. In this context, the employee's family or beneficiary stands to gain directly from these policies. When the insured employee passes away, the policy pays out a death benefit to the designated beneficiary, typically a family member or loved one. This benefit can be crucial for supporting the family financially during a difficult time, covering expenses such as mortgage payments, education costs, or daily living expenses. While the other entities mentioned may have some indirect benefits related to life insurance (like the employer's operating budget potentially receiving funding through key employee policies), they do not receive the direct monetary benefit that the family or designated beneficiary does. The insurance company, while crucial in providing the policy and managing risks, does not benefit from the payouts made to beneficiaries, as their role is to fulfill the contractual obligation of the policy. Thus, the design and purpose of life insurance emphasize the direct benefit to the employee's family or beneficiary, making this choice the most accurate response.