Which of the following best describes a life insurance policy?

A life insurance policy is best described as a contract between the insurer and the insured. This contract establishes the terms under which the insurance company agrees to pay a specified benefit upon the death of the insured or under certain circumstances as defined in the policy. It outlines the rights and obligations of both parties, including premium payments, coverage amounts, and the conditions that trigger the policy’s benefits.

Understanding this relationship is crucial because it defines the nature of life insurance as a promise of financial protection for the insured's beneficiaries. The insured pays premiums in exchange for the insurer’s commitment to provide a death benefit or other specified benefits, making it fundamentally a contractual arrangement.

In contrast, the other options mentioned do not accurately reflect the nature of a life insurance policy. A government grant for healthcare refers to a different form of financial support, a type of savings account is intended for accumulating funds rather than providing benefits tied to life events, and a retirement investment vehicle focuses on growing assets for retirement rather than providing a death benefit. Thus, recognizing the life insurance policy as a contract is essential for understanding its primary purpose and function in financial planning.