How Life Insurance Works

You don’t buy life insurance because you’re going to die, you buy it because those you love are going to live.

At its core, life insurance is a contract between an individual and an insurance company. In exchange for regular premium payments, the insurer agrees to provide a financial benefit to designated beneficiaries if the insured person passes away while the policy is active.

Life insurance policies are built from several key components that work together to determine coverage, cost, and duration.

Premiums
Premiums are the payments made to keep the policy active. The amount is typically based on factors such as age, health, lifestyle, coverage amount, and the type of policy selected.

Death Benefit
The death benefit is the amount paid to beneficiaries after the insured person’s passing. In many cases, this benefit is received income tax free and can be used to cover expenses, replace income, or support long term needs.

Cash Value (Permanent Policies Only)
Some permanent life insurance policies include a cash value component. This portion can grow over time and may be accessed under certain conditions, depending on the policy structure.

Policy Term
The policy term defines how long coverage lasts. Term life policies provide coverage for a specific period of time, while permanent policies are designed to remain in force for the insured’s lifetime, as long as premiums are paid.

Understanding how these components function together helps clarify what life insurance does and does not provide. Life insurance is not a one size fits all solution, but a financial tool that serves different purposes depending on the policy type and structure.

This content is provided for educational purposes only and does not constitute personalized insurance, legal, or financial advice.