What is a Life Insurance Policy?

A life insurance policy is an agreement between the insurance company and the insured person who owns the life insurance policy.

The insurance company agrees to pay out a death benefit upon your death, to the person you choose to receive the money (your beneficiary), and in return, you agree to pay a regular premium payment to the insurance company for the life insurance coverage.

Many people choose to buy life insurance as a way to replace their income for their family in case they die.

For instance, a father who works to provide for his family may purchase life insurance to leave to his wife in case he dies while the children are young and still at home. The money from the life insurance policy usually goes to your beneficiary free from any federal income tax. And, your beneficiary can use the money for any reason, which may include to pay the monthly bills, pay for your funeral, pay off the home mortgage, or provide for your child's education, among other things.

Find out why term life insurance is the most affordable type of life insurance.