How Does Life Insurance Work?

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The primary purpose of Life Insurance, as with any insurance, is peace of mind.

If you should suddenly or unexpectedly die, the beneficiaries named in your policy (often your family members) will receive the benefits, which can help your family survive financially after you're gone.

What's Life Insurance?

In formal terms: It's a financial arrangement between a Life Insurance company and an individual (policy holder) who pays the company (insurer) a certain amount of money (premium) with the guarantee that upon the death the insurer will pay the value of the policy (benefits) to the beneficiary or beneficiaries named in the policy. The payment of these benefits usually takes the form of either a lump sum or installments over a set period of time (known as an annuity).

In plain language: If you purchase Life Insurance and pay the premiums on time, when you die the insurance company will pay your family the amount of money specified in the policy.

Types Of Life Insurance

There are two main types of Life Insurance: Term Insurance and Permanent (a.k.a. Universal or Whole Life) Insurance. Term insurance covers you for a set amount of time, while permanent insurance doesn't expire.

Click here to learn more about Term Insurance.

Click here to learn more about Permanent Insurance.

Where To Purchase Insurance

You can purchase Life Insurance from one of the hundreds of companies in the United States, though coverage and costs will vary from company to company and plan to plan. If you're unsure of where to begin looking for insurance, use our Get Help Finding the Right Life Insurance tool.

You can also check with your employer to see if the company offers Life Insurance as a benefit for employees. Note: Those benefits and/or payouts are often much less than a private policy and if you leave your job you lose the benefits.

For advice on how to select an agent please read: How to Choose a Life Insurance Agent.