Life insurance is a contract where an insurance company agrees to pay money to chosen beneficiaries when the insured person dies. Pretty straightforward. Policyholders pay regular premiums to keep the coverage active. Some policies cover a set period, like 10 or 30 years. Others last a lifetime if premiums get paid. Certain types even build cash value over time that grows tax-deferred. The details get more complex depending on which type fits specific financial needs.
Design Highlights
- Life insurance is a contract that pays a death benefit to beneficiaries when the insured person dies.
- It provides financial protection for dependents by replacing lost income and covering debts or final expenses.
- Term life insurance offers temporary coverage for a set period, while permanent insurance covers your entire life.
- Permanent policies build cash value over time that grows tax-deferred and can be accessed through loans or withdrawals.
- Premiums vary based on coverage type, amount, age, health, and whether the policy includes cash value features.
Life insurance comes in two main flavors: term and permanent. Term life is the straightforward option. It covers you for a set period—usually 10, 20, or 30 years—and that’s it. No frills, no fancy investment features. Just pure death benefit coverage. If you die during the term, your beneficiaries get paid. If you don’t, the policy expires and you get nothing back. It’s often called “pure life insurance” for exactly this reason.
Term life premiums stay level throughout the coverage period, which makes budgeting easier. And because there’s no cash value component and the coverage eventually ends, term life costs way less than permanent insurance. People typically buy it to cover temporary financial obligations like a mortgage or to protect their family during their working years.
Permanent life insurance, on the other hand, sticks around for your entire life as long as you keep paying premiums. It also builds cash value over time—money you can borrow against or withdraw under certain conditions. The cash value grows tax-deferred, which sounds appealing until you realize permanent insurance costs considerably more upfront.
Permanent insurance breaks down into several subtypes. Whole life offers fixed premiums, a guaranteed death benefit, and guaranteed cash value growth. Universal life provides flexibility with premiums and death benefits but adds complexity. Variable life throws in an investment component where your cash value bounces around based on subaccount performance. Variable-universal life combines investment options with flexible premiums and death benefits, because apparently regular permanent insurance wasn’t complicated enough.
Beyond these main categories, there are specialized policies. Joint survivorship life insurance covers two people and pays out at either the first or second death, depending on the policy structure. Mortgage life insurance pays your lender directly if you die—not your beneficiaries, which feels a bit depressing. Dependent life insurance covers spouses or children, usually for smaller amounts. Final expense insurance handles burial and funeral costs with modest benefit amounts. Group term life typically comes through employers at no cost to the employee. Group life insurance comes through employers or associations and typically serves as supplementary coverage. Accidental death and dismemberment insurance is another supplemental option that provides coverage specifically for deaths or injuries resulting from accidents.
Cash value policies accumulate savings or investment value alongside the death benefit. Policyholders can access this money during their lifetime through loans or withdrawals, though terms apply.
The cash value growth might be fixed or variable depending on the policy type. These policies cost more initially because of the cash value feature—there’s no getting around that reality. Before purchasing any policy, you should read and understand all terms and conditions to ensure the coverage aligns with your needs.
Frequently Asked Questions
Can I Have Multiple Life Insurance Policies at the Same Time?
Yes, someone can absolutely have multiple life insurance policies at the same time.
There’s no legal restriction stopping it. It’s actually pretty common.
People hold several policies with different companies or even stack multiple policies with the same insurer.
The catch? Insurance companies won’t let anyone go overboard. They’ll check income and net worth to make sure the total coverage makes sense.
Can’t just insure yourself for billions on a teacher’s salary.
Does Life Insurance Cover Death by Suicide?
Most life insurance policies *will* cover suicide—but there’s a catch.
Insurers typically include a suicide clause that excludes payout if death happens within the first one to three years after buying the policy, usually two years.
Once that exclusion period ends, the death benefit generally pays out, even for suicide.
Switch policies? That clock resets.
During the contestability period, claims can get denied and beneficiaries might only receive premiums back instead of the full benefit.
What Happens if I Stop Paying My Life Insurance Premiums?
Stop paying premiums? The policy doesn’t just shrug and disappear immediately.
There’s usually a 30-day grace period where coverage stays active. Miss that window? The policy lapses. Done. No more death benefit.
Term insurance holders get nothing back—those premiums are gone forever.
Permanent policies might tap into cash value to keep things afloat temporarily, but once that’s drained, it’s over.
Reinstatement is possible within a few years, but it requires back payments and possibly proving insurability again.
Can I Borrow Money Against My Life Insurance Policy?
Yes, but only with permanent life insurance policies like whole life or universal life—term policies don’t qualify because they build zero cash value.
The catch? Enough cash value must accumulate first, which can take years or even over a decade.
Once that threshold is hit, policyholders can borrow against it without credit checks or income verification. The insurance company issues the loan, typically charging 5% to 8% interest, with no fixed repayment schedule required.
Do I Need a Medical Exam to Get Life Insurance?
Not always. Traditional term and permanent life insurance typically require a medical exam—blood work, urine samples, the whole deal.
But plenty of policies skip it entirely. Guaranteed issue, simplified issue, final expense, and group policies through employers often don’t need exams. Some insurers just ask health questions instead.
The catch? No-exam policies usually cost more because insurers know less about the applicant’s health.
It’s a trade-off between convenience and price.
