What Is Life Insurance? Definition

Why it matters

Life insurance gives a family money at the moment income stops. Beneficiaries can use it for funeral bills, a mortgage, daily costs, or debts. The two broad groups are term, which lasts a set period, and permanent, which can last for life. For example, a parent may buy term coverage to protect children until they are grown. Agents compare carriers to match the product to the need, budget, and health of the buyer. Death benefits are generally paid income tax free, though exceptions exist.

Source: iii.org

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Related terms

Term Life Insurance: Term life insurance is coverage that lasts for a fixed period, such as 10, 20, or 30 years. It pays a death benefit only if the insured dies during that term. It usually builds no cash value.
Whole Life Insurance: Whole life insurance is permanent coverage that lasts for the insured's entire life as long as premiums are paid. It combines a guaranteed death benefit with a cash value that grows at a rate set by the insurer.
Beneficiary: A beneficiary is the person or organization the policy owner names to receive the death benefit when the insured person dies. A policy can name one or several beneficiaries and can split the payout by percentage.
Death Benefit: A death benefit is the money a life insurance carrier pays to the beneficiary when the insured dies. It is usually paid as a lump sum and is generally income tax free to the beneficiary.
Premium: A premium is the amount you pay to keep an insurance policy active. You can pay it monthly, quarterly, semiannually, or annually, depending on the carrier.

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Where we use this term

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