Life insurance may seem complicated, but it doesn’t have to be. Learn the basics of a life insurance policy and get free online quotes today.
Life insurance is an agreement between you (the policyholder) and the insurance company. You make monthly payments toward your policy, and your beneficiaries receive a tax-free payout, known as the death benefit, if you die while your coverage is active.
There are many kinds of life insurance policies, but by far the most common ones are term and whole. Most people find term life insurance to be more practical — it is straightforward, affordable, and only lasts for as long as you need it. But the policy that’s best for you will depend on your individual circumstances, including your financial obligations, income, health, and lifestyle.
Term life insurance is the most affordable type of life insurance policy. In exchange for relatively low rates, your beneficiaries get a tax-free lump sum of money after you die. It lasts for a fixed period of time — typically 10 to 40 years, depending on your policy — which is all that most people need.
Whole life insurance lasts your whole life and, in addition to a death benefit payout, it comes with a cash value that can be used to supplement your savings. This type of policy is best for people who have maxed out other investments or have long-term financial obligations.
Another type of life insurance you might encounter is universal life insurance. Like whole life insurance, universal insurance coverage lasts for life and has a cash value savings feature. But you can adjust the premiums or benefit of a universal life policy, depending on your cash value performance. Unless you’re a high earner looking to maximize your investments, term or whole life are usually a better option than universal.
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