Life Insurance Basics
Life insurance is a key part of planning for the future. It’s designed to help protect your loved ones and provide financial support in the event of your passing. Whether you are just starting to explore your options or are looking to replace an existing policy, understanding the basics can help you make a more confident decision.
How does life insurance work?
Life insurance is a contract between you and an insurance carrier. You pay premiums and in return the insurance carrier pays a death benefit to your beneficiaries if you pass away during the coverage period. This money can be used to provide financial support for your family, cover funeral costs, and pay off debt. It is a loving way to take care of the important people who depend on you, even after you are gone.
Types of life insurance
Term Life
Provides coverage for a specific
period of 10, 20, or 30 years.
Designed to offer straightforward, temporary protection.
If you pass away during the term, your beneficiaries receive the death benefit. This type of policy is often chosen to cover needs that may diminish over time, such as income replacement and mortgage obligations.
Whole Life
The policy includes fixed premiums and can build a cash value component over time. This cash value grows on a tax-advantaged basis and can be accessed through policy loans or withdrawals. Whole life is well-suited for individuals who want lifelong protection.
Universal Life
Lifelong coverage but with additional flexibility.
How does life insurance compare?
Feature | Life Insurance (Term/Whole) | Savings Account | 401(k)/IRA |
|---|---|---|---|
| Death benefit |  | ||
| Cash value accumulation | Whole life only | | |
| Tax-deferred growth | Whole life only | | |
| Flexible payout options | | | |
| Backed by | Issuing company and State Guaranty Association | Federal Deposit Insurance Corporation (FDIC) | Issuing company/entity only |
Although many key features are captured here, there are other factors to consider.
Who needs life insurance?
- Have dependents counting on your income.
- Want to pay off outstanding debts (mortgage, loans).
- Lack funds to cover funeral or estate costs.
- Seek to leave a legacy or provide for heirs.
Before Purchasing a Policy
Assess Your Needs
Calculate how much coverage is required based on income replacement, debts, and financial goals.
Choose Your Policy Type
Decide between term life, whole life or universal life based on coverage duration, budget, and investment comfort.
Select an Insurer
Look for strong financial ratings (e.g., A-rated insurers) and a track record of timely claim payments.
Get Your Medical Exam
Most policies require underwriting—be prepared for lab tests and health questionnaires.
Finalize and Maintain
Sign the contract, pay premiums and review annually to ensure your coverage still meets your needs.
Dive deeper into life insurance
Frequently Asked Questions
Check out our Glossary of Terms for help in understanding industry definitons.
What’s the difference between term and whole life insurance?
- Term life offers coverage for a specified period of time.
- Whole life is permanent, with locked-in premiums and a cash-value component.
Can I convert a term policy to whole life?
Is life insurance taxable?
Death benefits are typically received tax-free. Cash value growth in permanent policies is tax deferred.
Do I need life insurance after retirement?
What impacts my premium?
Ready To Take the Next Steps?
Connect with your financial professional to learn more and to see if these products are a good fit for your personal retirement goals.