life insurance investment & finance definition

A contract that pays the insured’s beneficiaries a specified amount of money, called a death benefit, upon the insured’s death. In return, the insured pays the life insurance company monthly or yearly premiums.

There are many types of life insurance. Permanent insurance policies remain in effect throughout the life of the insured as long as premiums continue to be paid. These policies increase in value over time, allow the insured to borrow against the policy, and offer financial flexibility to use the cash value to pay the policy’s premium, if the policy holder is short on cash. Types of permanent policies are whole life, variable life, and universal life.

Term life insurance policies are cost-effective alternatives to permanent insurance policies. Term policies cover the insured for only a specified amount of time, which is usually one year. When that term is up, a new policy has to be obtained, but the insurer isn’t obligated to issue the policy if the person’s health condition worsens.