Correct.
This is how I see it: Default is no password, so the option has no effect. But if you set a password, you must also choose whether to "ignore password in debug mode".
Whether it is ticked by default or not is less important. But I think it's important to have that option.
In my country, we have many power failures, so it can happen that things go into debug mode by accident. I would like to keep my devices password-protected even in debug mode.
Other users will prefer to bypass the password in debug mode.