Which of the following best describes the impact of fair market value on life insurance?

The assertion that fair market value helps assess the accurate coverage needed by the policyholder is aligned with the principles of life insurance. Fair market value refers to the price at which an asset would sell in the open market, and in the context of life insurance, it can help policyholders and insurers gauge the appropriate amount of coverage that reflects the insured's financial needs and circumstances.

Understanding fair market value assists in determining how much coverage is required to meet potential financial obligations upon the policyholder's death, ensuring that beneficiaries receive an adequate benefit to address living expenses, debts, and other financial needs. When evaluating the correct level of coverage, life insurance agents often consider the policyholder’s assets, liabilities, and future financial goals in relation to the fair market value of these aspects.

In contrast, while it is significant for insurers to have a strategy regarding investments and to set premiums, fair market value's primary role in this context centers around helping determine suitable life insurance coverage, making the selected answer appropriate.