All About Life Insurance

Life insurance guarantees payment of a given amount to the insured person's beneficiaries when the policy owner dies. While many people, especially younger people, don't necessarily want to take the time to think about something as abstract as dying, this form of insurance is particularly important for parents or other persons with dependents.

The basic structure of most life insurance policies is relatively straight-forward: the policy owner pays a premium every month; upon the owner's death, the insurer issues payment for the policy amount to the spouse, children, or other beneficiary(-ies) named in the policy. In practice, as with most forms of insurance, specific policies can be much more complicated than this fairly simple model.

For example, the life insurance policy might have riders, or additional clauses, that pay off in the event of a terminal or critical illness or a permanent disability due to physical or mental causes. Also, there are different varieties of policies, including term life insurance, whole life coverage, universal coverage, and limited-pay policies. Understanding the difference between the different types of coverage and picking the appropriate one for your situation can be difficult, and professional advice may be necessary to ensure the correct policy is in place.

Term Life Insurance covers the insured for a certain number of years, after which the coverage typically expires. Because the policy does not build any cash value, and because it is typically based on a low likelihood of death for the covered person, term insurance premiums are usually relatively low. However, the length of the term, the amount of coverage (and whether it stays constant or decreases over time), and the premium amount (again, fixed or adjustable over time), will all affect the premium amount. The lower premium is a primary advantage of term life insurance; a drawback is that, at the end of the term, the still-living insured receives no benefit from the coverage.