At its core, insurance is a contract: you pay a company (the insurer) regularly, and in exchange, the company agrees to pay out money if a specific event happens — a death, an illness, a car accident, or reaching retirement income needs. It's a way of sharing risk so one bad event doesn't financially devastate you or your family.
Coverage that lasts for a set period — like 10, 20, or 30 years. If you pass away during that term, your beneficiaries receive a payout. If the term ends and you're still living, coverage typically ends unless renewed. It's generally the most affordable type of life insurance.
A permanent life insurance policy designed to last your entire life, as long as premiums are paid. It typically includes a "cash value" component that grows over time and can sometimes be borrowed against.
Another type of permanent coverage, but with more flexibility than whole life — policyholders can often adjust premiums and death benefits over time, within limits set by the policy.
A contract with an insurance company designed to provide a stream of income, often used in retirement. You either pay a lump sum or series of payments, and the insurer agrees to pay you back over time — sometimes for a set period, sometimes for the rest of your life.
A fixed annuity grows at a guaranteed, set interest rate. An indexed annuity's growth is tied to the performance of a market index (like the S&P 500), often with a cap on gains and a floor that protects against market losses — though specific terms vary widely by product.
The amount you pay — monthly, quarterly, or annually — to keep an insurance policy active. Miss enough payments, and a policy can lapse, meaning coverage ends.
The person, people, or entity you designate to receive the payout from your policy when a covered event occurs — most commonly, your death. You can usually name more than one and update beneficiaries as life changes.
A savings-like component found in permanent life insurance policies. A portion of your premium goes into this account, where it can grow over time, often tax-deferred, and may be accessible through loans or withdrawals while you're living.
The amount of money a life insurance policy pays out to your beneficiaries when you pass away, generally income-tax-free to the recipient.
The process an insurance company uses to evaluate risk before approving a policy — often including health questions, medical exams, or reviewing your driving or financial history. Underwriting determines your eligibility and your premium cost.
Optional add-ons to a base insurance policy that provide extra benefits — such as accelerated payouts for a critical illness, or coverage for a spouse — usually for an additional cost.
A life insurance policy designed to pay off or reduce what's left on your mortgage if you pass away, so loved ones can stay in the home without that monthly payment hanging over them. Coverage is often structured to decrease over time, in step with a typical mortgage balance.
A modest, affordable whole life policy — typically in the $5,000–$25,000 range — meant to cover funeral costs, medical bills, or other final expenses so loved ones aren't left covering those costs themselves. Approval is usually quick, and a medical exam often isn't required.
Coverage designed for people who may not qualify through traditional underwriting. Simplified issue asks a handful of health questions; guaranteed issue asks none at all. Both typically trade a higher premium, and sometimes a waiting period, for easier approval.
A type of permanent life insurance where the cash value's growth is linked to the performance of a market index, such as the S&P 500 — typically with a floor that limits downside loss and a cap that limits the upside. Premiums and death benefits are generally adjustable within policy limits.
An optional add-on, most often available on term policies, that can refund some or all of the premiums you paid if you outlive the term and never file a claim. It increases the cost of the policy in exchange for that potential refund.
Annuities written to cover two people. A first-to-die annuity stops paying once the first person passes away. A last-to-die annuity continues paying until both people have passed — usually at a lower monthly amount, in exchange for longer-lasting income for a surviving spouse.
A long-term strategy that uses a specially structured whole life policy's cash value as a source of loans for purchases or investments, while the policy's value continues to grow. It requires discipline and years of funding to become useful — it isn't a short-term solution.
A life insurance policy that gets reclassified by the IRS when too much money is paid into it too quickly during the early years. The death benefit generally remains tax-free, but withdrawals or loans taken during your lifetime can be taxed differently than in a standard policy.
A trust you can change or cancel during your lifetime. It's commonly used to help assets pass to beneficiaries without going through probate, though — unlike an irrevocable trust — it doesn't offer creditor protection or estate-tax advantages, since you still legally control the assets.
A trust that generally can't be changed once it's established, since you give up ownership of the assets placed inside it. In exchange for that loss of control, it can offer estate-tax advantages and stronger protection from creditors and lawsuits.
In most cases, no — life insurance death benefits are paid to beneficiaries free of federal income tax, regardless of the payout size. There are exceptions, such as when a policy is owned by someone other than the insured or when proceeds are left to earn interest before being paid out, so it's worth reviewing your specific situation with a tax professional.