What is life insurance and how does life insurance work?
A life insurance policy is a contract with an insurance company. In exchange for premium payments, the insurance company provides a lump-sum payment, known as a death benefit, to beneficiaries upon the insured's death. That's how life insurance works.
Typically, life insurance is chosen based on the needs and goals of the owner. Term life insurance is designed to provide financial protection for a specific period of time, such as 10 or 20 years. With traditional term life insurance, your premium payment amount stays the same for the coverage period you select. That’s why term life insurance is generally less expensive than whole life insurance. After that period, policies may offer continued coverage, but usually at a higher premium payment rate.
Term life insurance proceeds can be used to replace lost potential income during working years. This can provide a safety net for your beneficiaries and can also help ensure the family's financial goals will still be met—goals like paying off a mortgage, keeping a business running, and paying for college.
It's important to note that although term life can be used to replace lost potential income, life insurance benefits are paid at one time in a lump sum, not in regular payments like paychecks.
Whole life insurance is a type of permanent life insurance designed to provide lifetime coverage. Because of the lifetime coverage period, whole life usually has higher premium payments than term life insurance does. Policy premium payments are typically fixed and unlike term life insurance. Whole life has a cash value that can function as a savings component and may accumulate tax-deferred benefits over time.
Whole life can be used as an estate planning tool to help preserve the wealth you plan to transfer to your beneficiaries. It can also guarantee the standard of living you provided for your family while you were here, long after you’ve gone.
You can use the TruStage Life Insurance Calculator to compare different insurance coverage plans to help determine which type of life insurance is right for you.
How to learn more about life insurance
Life insurance may seem complicated, but it’s not that hard once you know the basics. Of course, we are happy to help. You can also use the TruStage Life Insurance Calculator to compare different types of insurance and learn more about your options.
What are the different types of life insurance?
It may seem simple but understanding insurance types can also be confusing. We’ve broken down a few of the most common types of life insurance policies to simplify things.
What should I look for in a reputable insurance company?
Cost isn’t everything in choosing the best life insurance policy. There’s also a lot to be said about choosing an insurance company you can really trust.
How much life insurance do you need?
This article walks you through several popular methods for estimating how much life insurance you need to ensure your family’s future.
Life insurance when you're young
It’s tempting to put off buying life insurance when you’re young, especially if you’re just starting out and money is tight. But there are two good reasons to buy life insurance now instead of waiting.
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