What Is Life Insurance?

Life insurance is a contract between an individual (the policyholder) and an insurance company, in which the insurer guarantees payment of a death benefit to designated beneficiaries upon the death of the insured individual. The death benefit is the amount of money that will be paid to the beneficiaries when the insured person dies. In exchange for this guarantee, the policyholder pays premiums to the insurance company, typically on a monthly, quarterly, or annual basis. There are two main types of life insurance: term life insurance, which provides coverage for a specific period of time and typically has lower premiums, and permanent life insurance, such as whole life or universal life, which provides coverage for the entire lifetime of the insured person and typically has higher premiums but also builds cash value over time.