What is life insurance?

Fact-checked with HomeInsurance.com


At Bankrate we strive to help you make smarter financial decisions. While we adhere to strict , this post may contain references to products from our partners. Here’s an explanation for

As car insurance insures your car and home insurance insures your home, life insurance insures your life. In 2018, only about 60% of people in the United States had some type of life insurance.

One reason more people do not have life insurance is that it is not mandatory. But another reason may be that it is a much more emotional topic than other types of insurance because it involves planning for death. But life insurance doesn’t have to be about focusing on death but instead focusing on the well-being of your loved ones after you’re gone. Learn about life insurance and how it can help you and your family.

What is life insurance?

What is life insurance, and what is a life insurance policy? Life insurance is a policy between you and your insurance provider that you will pay a monthly or annual premium in exchange for a lump sum of money to your loved ones when you die. That money may help them cover things like unpaid medical expenses, funeral expenses and loss of income.

There are two main types of life insurance: whole insurance and term insurance. Which type of life insurance you need will be based on personal factors like age, health and medical conditions.

Before we discuss how life insurance works, here are some helpful life insurance definitions to remember:

  • Policyholder: The policyholder is the person insured under the life insurance policy.
  • Death benefit: This is the money given to beneficiaries if the policyholder dies during the course of the insurance policy.
  • Beneficiaries: The people who receive death benefits when the policyholder dies.
  • Premium: The premium is the amount of money the insurance company charges yearly for life insurance coverage

How does life insurance work?

Now that you know the important terms associated with life insurance, let’s talk about how life insurance works and how to get it.

Get quotes

While some employers offer life insurance to employees, many do not. The first thing to do is to get a few quotes from insurance providers. The quoting process is free (tip: consider it a red flag if an insurance company asks you to pay for a quote.)

When comparing the quotes you received, make sure they are for equivalent coverages. If one company has quoted term life insurance while another has quoted whole life insurance, the rates will be too different and can’t be compared. Once you’ve received comparable quotes, decide which company offers you the most value for your dollar.

Apply for life insurance

Many insurance companies now offer an online application process. Those who don’t will typically take applications over the phone. You will answer some basic information related to your personal health and income. Next, you may be required to take a medical exam to identify medical conditions and overall status of health. You may also be asked to complete an interview with an insurance agent.

Sign your life insurance policy

After you have agreed on a premium, you will sign the policy and pay the premium. Congratulations, you now have life insurance!

Get the benefits when needed

Now, if you pass away, your specified beneficiaries will receive the death benefit guaranteed in your life insurance policy. For example, let’s say your policy pays out a death benefit of $50,000. Your beneficiaries will receive this benefit to use in whatever way they need or whatever way you have specified in your last will and testament.

What companies offer life insurance?

When seeking life insurance companies, the options are vast. As mentioned previously, many employers offer life insurance benefits as part of their benefits package. If you have not already, inquire about this during your employer’s open enrollment period. For those who do not have that option or wish to seek life insurance independently, we’ve included a list below of the top 5 life insurance companies based on the 2018 market share.

Rank Company Market Share %
1 MetLife Inc. 14.1
2 Prudential Financial Inc. 7.8
3 New York Life Insurance 5.2
4 Massachusetts Mutual Life Insurance Co. 4.0
5 American International Group 3.9

Frequently asked questions

What age should you get life insurance?

The earlier you get life insurance, the better. Because age, health and medical conditions are determining factors in life insurance rates, rates are lower the younger you are when you get the policy.

Is life insurance worth it?

Absolutely yes. If purchased early enough, life insurance rates are usually affordable and provide the peace of mind of knowing your loved ones will not face financial hardship as a result of your death.

How do you buy life insurance?

Gather quotes from life insurance companies. Decide which company you wish to proceed with. Complete their application and approval process. Sign the policy. It’s that easy!