What is life insurance and how does it work? A beginner's guide
Summary
Life insurance pays a named beneficiary if the policyholder dies while covered, helping with expenses such as lost income, debts, and funeral costs. Policy prices depend on factors such as age, health, coverage amount, and policy type; the article describes term, whole, and universal life insurance.Key Facts
- Policyholders name one or more beneficiaries and pay premiums for coverage.
- A beneficiary can claim the policy’s death benefit after the policyholder dies during the covered period.
- Applying may involve a health questionnaire and sometimes a medical exam; some policies do not require an exam.
- Term life insurance covers a set period and typically costs less than whole or universal life insurance.
- Whole life insurance is designed to last a lifetime and builds cash value over time.
- Universal life insurance offers flexibility to adjust the death benefit, but insufficient cash value can cause coverage to lapse.
- Common expenses covered by a death benefit include funeral costs, lost income, unpaid debts, and medical bills.
- Coverage may exclude some deaths, including those related to fraud in the application or certain activities; policy exclusions vary.
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