Question 71

An individual with a low income and high insurance needs should buy term insurance.

Term insurance is the most suitable option for an individual with a low income and high insurance needs, as it provides substantial coverage at an affordable premium. This type of insurance allows the individual to secure a death benefit during a specific term without the financial burden of higher premiums associated with other types of life insurance.

A) term insurance.

Term insurance is designed to offer high coverage at a low cost, making it ideal for individuals who require substantial protection but have limited financial resources. It provides a death benefit if the insured passes away within the term, ensuring that beneficiaries are supported financially in a time of need. Given the individual's low income, the affordability of term insurance makes it the most practical choice.

B) endowment insurance.

Endowment insurance combines life coverage with a savings component, resulting in higher premiums compared to term insurance. This makes it less suitable for someone with a low income, as the cost may not be manageable. Additionally, the savings element may not address the immediate high insurance needs effectively.

C) whole life insurance.

Whole life insurance offers lifelong coverage and includes a savings component that builds cash value over time. However, the premiums are significantly higher than those of term insurance, which can be a financial strain for individuals with low incomes. Therefore, while it provides long-term benefits, it is not the most feasible option for someone needing immediate and affordable coverage.

D) universal life insurance.

Universal life insurance provides flexible premiums and death benefits but typically comes with higher costs than term insurance. This flexibility may not be beneficial for individuals with limited income, as they might struggle to maintain the necessary premium payments. Thus, it does not effectively meet the insurance needs of someone in this financial situation.

Conclusion

Term insurance stands out as the most appropriate option for an individual with low income and high insurance needs due to its affordability and adequate coverage. In contrast, endowment, whole life, and universal life insurance options all entail higher costs, making them less suitable for someone in this financial position. The focus on securing essential protection without excessive financial strain solidifies term insurance as the best choice.