lifeinsurance

Life insurance is a contract in which an insurer promises to pay a designated death benefit to named beneficiaries upon the death of the insured, or after a specified term, in exchange for regular premium payments. The primary purpose is to provide financial protection for dependents and to cover debts or final expenses.

Policy types include term life, whole life, universal life, and variable life. Term life covers a set number of years and pays only if death occurs during that term. Whole life provides permanent coverage with a guaranteed death benefit and a cash value component. Universal life offers flexible premiums and a cash value that earns interest, with adjustable death benefits. Variable life combines life coverage with investment options.

How it works: Policyholders select a coverage amount and pay premiums. The insurer promises a death benefit to beneficiaries; some policies allow the cash value to grow and be borrowed against or withdrawn, which can reduce the death benefit later. Payouts are typically exempt from income tax in many jurisdictions, though local tax rules may apply.

Underwriting and pricing: Applicants are assessed for age, health, and lifestyle, and may undergo medical examinations. Premiums depend on age, health, gender, smoking status, and policy type. Some policies offer riders such as accelerated death benefits, waiver of premium, or accidental death coverage.

Regulation and planning: Life policies are issued by insurers and regulated by relevant authorities. Proceeds are generally income tax-free in many places, but estate taxes and local rules may apply. Life insurance is commonly used in estate planning, income replacement, and business succession.

Limitations and criticisms: Policies can be costly over time, and some include high fees or complex features. Mis-selling and misunderstanding terms can occur. Buyers should compare products, read policy documents, and consider alternatives such as term coverage or disability insurance.