When you purchase a life insurance policy, you are essentially betting that you will die before the policy expires. If you do die before the policy expires, the insurance company pays out a death benefit to your beneficiaries. If you don’t die before the policy expires, then you (or your beneficiaries) get nothing.
There are two main types of life insurance: term life insurance and whole life insurance.
Term life insurance is the more straightforward of the two. You pay premiums for a specific period of time (usually 10-30 years), and if you die during that time period, your beneficiaries receive a death benefit. If you live past the term, then the coverage expires and you (or your beneficiaries) get nothing.
Whole life insurance is a bit more complicated. In addition to the premiums, you also have to pay a “policy premium” (which is basically just another name for the premium). This policy premium is usually higher than the premiums for term life insurance, but it also covers your policy for your entire lifetime. So even if you die after the term expires, your beneficiaries will still receive the death benefit.
There are also different types of whole life insurance policies: traditional whole life insurance and universal life insurance. Traditional whole life insurance has fixed premiums and a fixed death benefit. Universal life insurance has flexible premiums and a flexible death benefit. This means that you can change how much you pay in premiums (within certain limits) and how much your beneficiaries will receive in the event of your death (also within certain limits).
