Advanced Diploma of Financial Planning (ADFP) Practice Test

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Prepare for the Advanced Diploma of Financial Planning Exam. Study with flashcards and multiple-choice questions, each question has hints and explanations. Get ready for your exam!

Each practice test/flash card set has 50 randomly selected questions from a bank of over 500. You'll get a new set of questions each time!

Practice this question and more.

What best summarizes the purpose of disability insurance?

To help with housing expenses.
To replace lost income due to disability.
To cover health care costs.
To finance luxury purchases.

The correct answer is: To replace lost income due to disability.

Disability insurance primarily serves the purpose of replacing lost income in the event that an individual becomes unable to work due to a disability. When a person is unable to earn a paycheck because of an injury or illness, disability insurance provides financial support that helps maintain their standard of living while they recover. This aspect is crucial, as many individuals rely on their income for daily expenses such as mortgage payments, bills, and other obligations. The other options focus on specific financial needs that are not the primary aim of disability insurance. Housing expenses and health care costs are important but are often addressed by other insurance products or financial planning strategies. Luxury purchases are typically not a concern in the context of disability insurance, as the core purpose is to ensure that basic living expenses can be met when income is interrupted. Thus, the central theme of disability insurance is to replace income lost from being unable to work, making it essential for financial stability during challenging times.