Life Insurance Basics
What Is Life Insurance?
Insured
This is the person whose life is covered by the policy. While the insured is often also the policy owner and the one paying the premiums, it’s possible for someone else to own and pay for the policy.
Beneficiary
The individual(s), organization(s), or institution(s) designated to receive the death benefit if the insured passes away. You can name one or multiple beneficiaries when setting up the policy.
Premium
The amount of money paid to keep the policy active. As long as premiums are paid, the insurance company agrees to pay out the death benefit to your beneficiaries. If you stop paying, the policy may lapse.
Death Benefit
The lump-sum payment made to your beneficiaries upon your passing. This amount is typically not taxed as income and is paid directly to your beneficiaries to help cover expenses and provide financial support.
Not Sure How Much Coverage You Need?
Use our coverage calculator to estimate the right amount of life insurance to help protect your family’s financial future.
What Type of Life Insurance Is Right for You?
The two main types of individual life insurance are term and permanent. Choosing the right one depends on how long you need coverage, your financial goals, and your budget. Here’s a quick overview to help you decide which option may best suit you and your family.
Permanent Life Insurance (Whole or Universal)
Permanent life insurance provides lifelong coverage—as long as premiums are paid—guaranteeing a death benefit payout. While it can cost 5 to 10 times more than term life insurance, it may be a smart option if you’re looking for coverage that builds cash value and never expires.
- Most permanent policies include a cash value component, which grows over time at a guaranteed minimum rate.
- Policyholders can usually borrow from, withdraw, or leave the cash value untouched to enhance or maintain the death benefit.
- Because of its long duration and savings-like features, permanent coverage typically comes with higher premiums compared to term life.
Real-life example: Frank is 68 and retired. He wants peace of mind knowing his loved ones won’t be burdened with final expenses. Since he wants coverage that won’t expire, a whole life policy is the right fit—guaranteeing a death benefit no matter when he passes.
Term Life Insurance
Term life insurance provides coverage for a set period—known as your term—and does not build cash value. The death benefit is only paid out if the insured person passes away during that term. Because it’s simple and generally more affordable than permanent coverage, term life is a great fit for many families.
- With term life, you can choose both the length of the term and the amount of coverage. If you pass away during the term, your beneficiaries receive the full death benefit. If you outlive the term, no benefit is paid—but many policies offer the option to renew.
- Term premiums are usually lower than those for permanent life insurance, making it a budget-friendly way to protect your loved ones.
Real-world example:
Sarah is a 35-year-old married mother of two young children and the primary earner in her household. She wants to make sure her children can still attend college if something happens to her. A term life policy makes the most sense for Sarah—she can match her coverage to the years her kids will be in school, ensuring their future is protected without paying for lifelong insurance.
Whole vs. Term Life Insurance
Employer-Sponsored (Group) Life Insurance
Group life insurance is often offered as part of your employee benefits package. While it provides some coverage at little or no cost to you, it’s usually not enough to fully protect your loved ones. That’s why many people choose to supplement their workplace policy with an individual term life insurance plan for more complete coverage.
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How Much Coverage Do I Need?
The right amount of life insurance depends on your unique financial situation. A simple way to estimate it is by adding up your long-term financial obligations—like debts, income replacement, and future expenses—then subtracting your existing assets. The difference is the amount life insurance should cover. Not sure where to start? Use our life insurance calculator to help determine the right coverage for you.
