Life Insurance: What It Is, How It Works, and How To Buy a Policy

 What Is Life Insurance?

Life insurance is a contract between an insurance company and a policy owner in which the insurer guarantees to pay a sum of money to one or more named beneficiaries when the insured person dies in exchange for premiums the policyholder pays during their lifetime. The best life insurance companies have good financial strength, a low number of customer complaints, high customer satisfaction, several policy types, available and included riders, and easy applications.


KEY TAKEAWAYS

Life insurance is a legally binding contract that promises a death benefit to the policy owner when the insured person dies.

For a life insurance policy to remain in force, the policyholder must pay a single premium upfront or pay regular premiums over time.

When the insured person dies, the policy’s named beneficiaries will receive the policy’s face value, or death benefit.

Term life insurance policies expire after a certain number of years. Permanent life insurance policies remain active until the insured person dies, stops paying premiums, or surrenders the policy.

A life insurance policy is only as good as the financial strength of the life insurance company that issues it. State guaranty funds may pay claims if the issuer can’t.

Life Insurance

Investopedia / Theresa Chiechi


Types of Life Insurance

Many different types of life insurance are available to meet all sorts of needs and preferences. Depending on the short- or long-term needs of the person to be insured, the major choice of whether to select temporary or permanent life insurance is important to consider.



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