Primerica Life Insurance Practice Exam 2026 – Complete Prep Guide

Having an insurance trust provides significant advantages for estate planning and managing tax implications, which is why this option is the correct choice. When life insurance policies are placed in a trust, the death benefits do not count as part of the insured's taxable estate. This can help reduce estate taxes and ensure that more of the policy's value is passed on to the beneficiaries.

Additionally, using an insurance trust allows for more structured management of the policy’s proceeds. The trust can specify how and when the funds are distributed to beneficiaries, which can prevent mismanagement or premature spending of the proceeds. This can be particularly beneficial when the beneficiaries are minors or those who may not be financially responsible.

In contrast, direct management by beneficiaries, guaranteed payouts, and the elimination of the need for a will do not capture the primary function of an insurance trust, which is to aid in tax efficiency and estate planning strategies. While these aspects may be relevant in broader contexts of insurance and estate management, they do not reflect the essential reason for utilizing an insurance trust.