Life insurance basics
Everything you need to know about how life insurance works, the different types of coverage, and how to choose the right policy for your loved ones.
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What is life insurance?
Life insurance is a legal contract between you and an insurance provider. In its simplest form, you agree to pay a regular premium, and in return, the insurer agrees to pay a lump sum of money (the “death benefit”) to your beneficiaries if you pass away.
It serves as a financial safety net, ensuring that your family can maintain their standard of living, pay off debts, and fund future goals like education even if your income is no longer available.
How life insurance works
The process involves three main parties:
The Insured
The person whose life is covered by the policy. This is usually the person who applies and pays premiums.
The Insurer
The company (like Coveredly's partners) providing the coverage and guaranteeing the payout.
The Beneficiary
The people or organizations you choose to receive the money from your policy.
Terms to know
Premium
The monthly or annual payment required to keep your policy active.
Death Benefit
The total amount paid out to your beneficiaries upon your death.
Term Length
The duration of time your policy provides coverage (e.g., 20 years).
Underwriting
The process insurers use to determine your risk and set your price.
Types of life insurance
Most people choose between Term and Permanent insurance. Term is often the best fit for families who want to cover specific debts or income-earning years.
Term Life Insurance
The most popular and affordable type. You choose a set period (like 20 years) and if you pass away during that time, your family gets the payout. It's "pure protection" without investment components.
Whole Life Insurance
A type of permanent insurance that covers you for your entire life and includes a "cash value" savings component that grows over time. Premiums are significantly higher than term life.
Who needs life insurance?
If anyone depends on you financially, you likely need life insurance. This includes:
How much do I need?
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A good rule of thumb is 10-15x your annual income, but your mortgage and existing debts are the biggest factors.
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