Your Free Guide to Understanding Life Insurance

Life insurance might sound like something you’ll “get around to someday,” but understanding how it works right now can make a big difference later. Whether you’re just starting your career, raising a family, or thinking ahead about your legacy, life insurance can be a powerful tool for protecting the people you love.

This guide walks you through what you should know about life insurance in simple terms. We’ll review what life insurance is, the different types of policies that are usually available, how much it typically costs, and how to figure out if (or when) it makes sense to purchase a policy. We’ll even dig into how some policies are designed to build cash value over time, and why buying young could lead to some money savings in the long run.

What Is Life Insurance?

In the simplest of terms, life insurance is a contract between you and an insurance company. In exchange for regular payments, called premiums, the insurer promises to pay a set amount of money to the people you choose, called beneficiaries, after you pass away. It’s designed to help your loved ones stay financially secure, even if you’re no longer around to support them.

At its core, life insurance does two things:

Financial protection: It helps cover things like funeral costs, debts, mortgage payments, and daily living expenses for your family.
Peace of mind: It can give you the comfort of knowing your loved ones won’t be left struggling financially.

Depending on the type of policy, life insurance can also serve as a financial planning tool. Some policies build cash value over time, which you can borrow against or even use during your lifetime.

You don’t need to be wealthy or have dependents to consider life insurance. It’s about planning ahead on your terms.

Glossary of Life Insurance Terms

Not sure what some of these insurance terms mean? You’re not alone. Here’s a quick glossary to help you understand the most common phrases you’ll see throughout this guide and when searching for a life insurance policy that fits your needs.

Premiums: The payments you make to keep your life insurance policy active, usually monthly or annually.
Beneficiary: The person (or people) you choose to receive the policy’s payout (also called a death benefit) when you pass away.
Death Benefit: The amount of money the insurance company pays to your beneficiary after your death.
Policyholder: The person who owns and pays for the life insurance policy—you.
Face Value: The amount of money listed on the policy that will be paid out as the death benefit.
Term Life Insurance: A policy that covers you for a specific number of years—like 10, 20, or 30 years.
Whole Life Insurance: A permanent policy that lasts your entire life and builds cash value over time.
Cash Value: A savings-like component of some permanent life insurance policies that grows over time and can be borrowed against.
Underwriting: The process the insurer uses to assess your risk level and determine your policy details and premium.
Rider: An add-on you can purchase to customize your policy, for example, a waiver of premium rider or accidental death benefit rider.
Lapse: When a policy ends because the premium hasn’t been paid.
Surrender: When you cancel a permanent life insurance policy and take out the cash value (minus any fees).

Reasons to Buy Life Insurance

Life insurance isn’t just about planning for the unexpected; it’s about taking care of the people who matter most. Everyone’s situation is different, but most people buy life insurance for one key reason: to make sure their loved ones are protected if something happens to them.

Here are some common reasons people choose to get life insurance:

Paying for final expenses: Life insurance can help cover funeral costs, medical bills, or burial expenses, which can add up quickly.
Replacing lost income: If you support your household financially, a life insurance payout can help your family maintain their standard of living.
Covering debt: From mortgages to student loans, life insurance can help make sure your family isn’t stuck with unpaid bills.
Supporting children: Many people get life insurance to make sure there’s money available for childcare or future college tuition.
Planning ahead: Even if you don’t have dependents now, life insurance can lock in a lower rate while you’re young and healthy.

Whether you’re thinking about your kids, your partner, your parents, or even a close friend, life insurance is one way to keep supporting them—even when you’re not here.

Do You Need Life Insurance If You’re Single or Child-Free?

If you’re not married and don’t have kids, it’s easy to assume life insurance doesn’t apply to you. But there are still plenty of reasons to consider getting a policy, especially if you’re looking ahead or want to take control of your long-term finances.

Here are a few situations where life insurance might still be a smart move:

You have co-signed debt: If a parent, friend, or partner co-signed your student loans, car loan, or credit card, they could be on the hook if something happens to you.
You want to lock in a low rate: Life insurance costs less when you’re younger and healthier. Getting a policy now could save you money down the road.
You expect to have dependents later: You might not have a family now, but planning ahead can give you peace of mind for the future.
You want to leave a legacy: Some people use life insurance to make a charitable donation or leave something behind for someone they care about.
You want coverage for final expenses: Even a small policy can cover funeral costs and keep loved ones from facing unexpected bills.

Life insurance isn’t just for families with kids. It’s a flexible tool that can fit a wide range of personal goals and financial situations.

Types of Life Insurance Policies

Not all life insurance policies are created equal. The policy you choose depends on a few factors, such as budget, goals, and how long you want coverage. Here’s a breakdown of the most common types of life insurance policies.

Term Life Insurance

Term life covers you for a set period of time—usually 10, 20, or 30 years. If you pass away during the term, your beneficiary gets the payout. If the term ends and you’re still living, the policy expires without a payout.

Why people choose it: It’s usually the most affordable option and great for covering big obligations, like a mortgage or raising kids.

Whole Life Insurance

Whole life is a type of permanent insurance that lasts your entire life, as long as you keep paying the premiums. It also builds cash value, which you can borrow against.

Why people choose it: It offers lifelong coverage with fixed premiums and a savings component.

Universal Life Insurance

Like whole life, universal life offers permanent coverage and cash value, but with more flexibility. You can adjust your premium and death benefit as your needs change.

Why people choose it: It provides more control over the policy’s structure and payments.

Variable Life Insurance

Variable life includes investment options. Part of your premium goes into sub-accounts (kind of like mutual funds), which can grow or shrink based on market performance.

Why people choose it: It has the potential for higher returns, but also carries more risk.

Group Life Insurance

Group life is typically offered by employers at low or no cost. Coverage is often limited and may not follow you if you leave the job.

Why people choose it: It’s a convenient and inexpensive way to get basic coverage, but it’s usually not enough on its own.

Final Expense Insurance

Also called burial insurance, this is a smaller policy meant to cover funeral costs and other end-of-life expenses.

Why people choose it: It’s easy to get and provides peace of mind for covering immediate costs after death.

Riders and Customizations: Add-Ons That Matter

Life insurance policies aren’t one-size-fits-all. That’s where riders come in. Riders are optional add-ons you can include in your policy to give it extra flexibility, coverage, or protection. Some come standard, while others cost a little more, but they can make a big difference depending on your situation.

Here are some of the most common riders to consider:

Accelerated Death Benefit Rider: Lets you access part of your death benefit early if you’re diagnosed with a terminal illness.
Waiver of Premium Rider: If you become seriously disabled and can’t work, this rider waives your premiums so your coverage doesn’t lapse.
Child or Spouse Rider: Offers a small amount of life insurance for a family member, added onto your own policy.
Accidental Death Benefit Rider: Pays out extra if your death is caused by an accident.
Long-Term Care Rider: Helps pay for assisted living, nursing home care, or in-home care if you need it later in life.
Return of Premium Rider: Refunds your premiums if you outlive your term policy (not available with all term life plans).
Guaranteed Insurability Rider: Lets you increase your coverage later, without taking a new medical exam.
Term Conversion Rider: Allows you to convert a term policy into a permanent one before it expires, often without additional underwriting.
Disability Income Rider: Provides a monthly income if you become disabled and can’t work.
Family Income Benefit Rider: Instead of a single payout, your beneficiary receives a stream of monthly income over time.

These riders may not apply to everyone, but depending on your health, job, family structure, or long-term goals, one or more could give your policy the extra support it needs.

Life Insurance as an Investment Tool

Some types of life insurance do more than just provide a payout after you pass—they also include a built-in savings or investment feature. These are typically called permanent life insurance policies, like whole life, universal life, or variable life.

The investment piece is called cash value, and here’s how it works:

Cash Value: A portion of your premium goes into a savings-like account that grows over time, often at a guaranteed rate (or, in the case of variable life, based on market performance).
Access While You’re Living: You can borrow against your cash value, withdraw from it, or use it to pay future premiums.
Tax-Deferred Growth: Your cash value usually grows tax-deferred, meaning you don’t pay taxes on it unless you withdraw more than you’ve paid in.

Sounds good, right? It can be, but it’s not for everyone. Here are a few pros and cons to keep in mind:

Pros:

Builds long-term savings
Can provide emergency funds or retirement support
Offers lifelong coverage

Cons:

More expensive than term life
Slower growth compared to traditional investments
Loans or withdrawals may reduce your death benefit

If you’re looking for both coverage and a way to build long-term value, permanent life insurance could be worth exploring—but it shouldn’t replace things like retirement accounts or emergency savings.

Life Insurance for Young Adults: Why It Matters

If you’re young, healthy, and just starting out, life insurance probably isn’t at the top of your to-do list—but it actually might be one of the smartest moves you can make early in life.

Here’s why getting a policy when you’re young can work in your favor:

Lower premiums: Life insurance is cheaper when you’re young and healthy. The longer you wait, the more you’re likely to pay, especially if your health changes.
Lock-in coverage: Buying early lets you lock in a good rate for the long haul, even if your risk factors increase later.
Protect co-signers: If someone co-signed your student loans or car loans, a policy can make sure they’re not left with that debt.
Plan for the future: If you’re planning to have kids, buy a home, or build a life with a partner, getting insured now sets you up for long-term stability.
Build cash value: If you choose a permanent policy, you can start growing cash value early and use it later for emergencies or big financial goals.

You might not “need” life insurance right this second, but getting it now can save you money, give you options, and protect the people who matter most if life takes an unexpected turn.

Pros and Cons of Life Insurance

Life insurance can be a powerful tool, but like any financial decision, it’s important to look at both the benefits and potential drawbacks. Here’s a full breakdown to help you weigh your options.

Pros

Financial protection: Your loved ones receive a tax-free lump sum that can cover everything from funeral expenses to daily living costs.
Peace of mind: Knowing your family or dependents won’t be left in financial distress can ease long-term worries.
Customizable coverage: Riders and add-ons let you tailor your policy to your lifestyle, health, or financial goals.
Tax advantages: Death benefits are generally tax-free, and cash value in permanent policies grows tax-deferred.
Legacy planning: You can use life insurance to leave money to a favorite charity, school, or non-dependent family member.
Helps cover estate taxes: For high-net-worth individuals, a policy can provide needed liquidity so heirs don’t have to sell assets.
Policy loans aren’t taxed: You can borrow from the cash value of permanent policies without triggering taxes (as long as the policy stays active).
Supplemental retirement income: Some people use permanent life insurance as a backup source of funds during retirement.
Lower premiums when young: Young adults usually qualify more easily and pay less for coverage.

Cons

Cost: Permanent life insurance is more expensive than term, and even term can add up over time.
Complexity: The different types of policies, riders, and terms can be confusing, especially if you’re new to insurance.
Slow cash value growth: The investment component in permanent policies grows slowly compared to traditional savings or retirement accounts.
Not always necessary: If no one relies on your income and you’ve built enough assets, you might not need a policy right now.
Surrender fees: Canceling a permanent policy early can result in steep penalties or lost value.
Risk of policy lapse: Missing premium payments, especially on flexible or loan-heavy policies, can cause your coverage to end.
Limited flexibility with term: Once a term policy ends, it’s often more expensive to renew or convert, especially as you age or if your health changes.

Life insurance can be a meaningful part of your financial plan, but it works best when you understand what you’re paying for and why.

What Affects the Cost of Life Insurance?

Wondering why some people pay $20 a month for life insurance and others pay $200? Life insurance pricing isn’t random—it’s based on risk. Insurers look at a range of personal and policy-specific factors to decide how much you’ll pay.

Here are the most common things that affect your premium:

Age: The younger you are when you apply, the less you’ll typically pay. Rates rise with age.
Health history: Chronic conditions like diabetes or high blood pressure can raise your premium or lead to denial.
Medical exam results: Many policies require a basic exam to check your vitals, weight, and bloodwork.
Smoking status: Smokers almost always pay significantly more for coverage.
Gender: Statistically, women live longer than men, so they often pay a bit less for the same policy.
Lifestyle and occupation: Risky jobs (like firefighting) or hobbies (like skydiving) can push your rates up.
Coverage amount: The larger the death benefit, the higher your monthly premium will be.
Policy type: Term life is usually cheaper than permanent policies like whole or universal life.
Policy length: A 30-year term costs more than a 10-year term because you’re being covered longer.
Riders or add-ons: Additional features like a waiver of premium or an accidental death benefit rider will increase your cost.

Some factors—like your age and health—are out of your hands. But others, like smoking or how much coverage you choose, are within your control.

How Much Does Life Insurance Cost?

Life insurance premiums vary widely depending on your age, health, gender, coverage amount, and the type of policy you choose. Here’s a look at average monthly premiums for healthy, non-smoking individuals as of 2025, according to Progressive and Aflac:

Term Life Insurance (20-Year Term, $250,000 Coverage)

Age	Male	Female
20	$16.10	$14.79
30	$16.10	$15.01
40	$18.92	$17.84
50	$35.45	$31.97
60	$77.43	$59.60

Source: Progressive

Whole Life Insurance ($250,000 Coverage)

Age	Male	Female
20	$169.00	$146.00
30	$238.00	$205.00
40	$355.00	$296.00
50	$543.00	$462.00

Source: Aflac

As you can see, term life insurance tends to be much more budget-friendly, especially if you’re in your 20s, 30s, or 40s. The tradeoff is that coverage ends after a set number of years.

Whole life insurance, on the other hand, is significantly more expensive but stays in place for your entire life and builds cash value over time. That extra cost reflects the added long-term benefits.

The most important takeaway? The earlier you buy, the less you’ll pay. Rates climb quickly with age, and even more so if your health changes. Locking in coverage while you’re young and healthy can mean decades of lower premiums.

Even if you’re not sure how much coverage you need yet, starting with a smaller policy while you compare your options can be a cost-effective way to get protected.

How Costs Change as You Age

Age is one of the biggest factors in determining how much you’ll pay for life insurance, and the difference can be dramatic. The older you are when you apply, the more likely you are to pay higher premiums, even if you’re healthy.

Here’s why costs rise with age:

Higher risk: As you get older, your likelihood of developing health conditions increases. Insurance companies factor that risk into your rates.
Shorter timeline: With fewer potential years left in the policy, the insurer has less time to collect premiums, so they charge more to compensate.
Limited options: After a certain age (typically around 60–70), your choices may narrow. Some types of policies, like term life, may only be available in shorter durations or with higher minimum premiums.

Even if you don’t need a large policy right now, getting coverage earlier can help you lock in a low rate and protect your ability to buy more coverage later on.

What Life Insurance Covers—And What It Doesn’t

Life insurance is meant to provide financial support to your loved ones after you’re gone, but it’s not a blanket promise to pay out under every circumstance. Understanding what’s covered (and what’s not) can help you avoid surprises later on.

What Life Insurance Usually Covers

Natural causes: Illness, old age, and most diseases are covered by both term and permanent policies.
Accidental death: Deaths from car crashes, falls, or other accidents are almost always included.
Medical conditions: As long as they weren’t hidden or misrepresented on your application, most medical causes of death are covered.
Homicide: Death caused by another person is typically covered, but policies may delay payment during an investigation.
Suicide: Most policies include a suicide clause, which excludes coverage for suicide during the first 1–2 years of the policy, but after that period, it’s usually covered.

What Life Insurance Usually Doesn’t Cover

Fraud or misrepresentation: If you lie or leave out important health info on your application, the insurer can deny the payout.
Risky behavior: Deaths related to illegal activity, drug overdose, or extreme hobbies like bungee jumping may not be covered, especially if excluded in your policy.
Suicide (early in the policy): If the policyholder dies by suicide during the exclusion period (usually the first 12–24 months), the claim may be denied.
Lapsed policies: If your policy wasn’t active at the time of death due to missed payments, the insurer won’t pay out.

Every policy has its own fine print, so it’s worth reading the details or asking questions before signing anything.

What Happens When Someone Dies? Understanding the Payout Process

When someone with life insurance passes away, the process to claim the death benefit is usually straightforward, but it helps to know what’s involved so there are no surprises.

Here’s what typically happens:

Notify the insurer: The beneficiary (or a family member) contacts the insurance company to let them know the policyholder has died.
Submit a claim: You’ll need to fill out a claim form and provide a certified copy of the death certificate. Some insurers allow this to be done online.
Wait for review: The insurer reviews the claim to confirm everything is accurate and the policy was in force at the time of death.
Receive the payout: If everything checks out, the insurer issues a tax-free lump sum to the beneficiary, usually within a few weeks.

In some cases, like accidental deaths or recent policy purchases, the insurer may take a little longer to investigate. However, if the policyholder is honest and up to date on payments, the payout is usually approved quickly.

Some policies also include options for other forms of payouts. Common payout options include:

Lump sum: Most common—receive the full amount at once
Installments: Get smaller payments over time
Retained asset account: Funds are held in an interest-bearing account you can access as needed

Knowing how the process works can make a hard time just a little easier for those left behind.

What Happens if You Miss a Payment?

Life gets busy, and sometimes, a payment slips through the cracks. The good news is that missing one life insurance premium doesn’t instantly cancel your policy. But it’s important to act quickly to keep your coverage from lapsing.

Here’s what usually happens:

Grace period: Most policies include a grace period, usually 30 or 31 days, after your due date. If you pay during that time, your policy stays active.
Policy lapse: If you miss the grace period, your policy may lapse, meaning your coverage ends, and no payout would be made if you passed away.
Reinstatement: Some insurers allow you to reinstate a lapsed policy within a certain timeframe (often up to 5 years). However, you may need to pay missed premiums and go through underwriting again.

For permanent life insurance policies, your policy may stay in effect longer, temporarily using the policy’s cash value to cover missed payments. But if the cash value runs out, the policy will still lapse.

If you think you’ll miss a payment, don’t wait—reach out to the insurance company. They may be able to help you keep your policy in place without penalties.

Can You Change or Cancel a Life Insurance Policy?

You can absolutely make changes to your life insurance policy, and in many cases, you can cancel it altogether. But how that works depends on the type of policy you have and how long it’s been active. Here are your main options:

Change your beneficiaries: You can update who receives the payout at any time, as long as your policy allows it (most do).
Adjust your coverage: Some policies, especially universal life, let you increase or decrease the death benefit or change how much you pay.
Add or remove riders: You may be able to add riders (like a waiver of premium) or drop ones you no longer need.
Convert your term policy: Some term life policies let you convert to a permanent policy without a medical exam before the term ends.

If you decide to cancel your policy entirely:

Term life: You can stop paying, and the policy will lapse. There’s no refund, but also no penalty.
Whole or universal life: You may be entitled to the cash surrender value, which is the amount you’ve built up minus any fees or loans. Canceling early can mean losing some or all of that value.

Life can change fast, so it’s good to know your life insurance policy can, too.

Life Insurance vs. Other Financial Tools

Life insurance can be a great piece of your financial puzzle, but it’s not meant to replace every other tool. Depending on your goals, you might be better off using it alongside other options like savings accounts, retirement plans, or emergency funds.

Here’s how life insurance compares to other common financial tools:

Emergency fund: Covers short-term unexpected costs like car repairs or medical bills. Life insurance won’t help if you lose your job or need quick access to cash.
Savings account: A safe place to stash money you might need soon. Life insurance isn’t liquid like savings; you can’t access the death benefit unless the policyholder passes away.
401(k) or IRA: Designed to grow over time and support you in retirement. Life insurance protects your loved ones, while retirement accounts protect your future self.
Investments (stocks, ETFs, etc.): Build long-term wealth through market growth. Life insurance is more stable and predictable, but it doesn’t offer the same return potential as investing.

In short, life insurance isn’t a substitute for saving or investing, but it can protect those financial plans if something unexpected happens. Think of it as a safety net, not a shortcut.

How to Find and Compare Life Insurance Policies

Shopping for life insurance can feel overwhelming at first, but once you know what to look for, it gets a lot easier. The key is to compare policies side by side so you’re not just chasing the lowest price—you’re getting the coverage that fits your life. Here’s how to get started:

Decide how much coverage you need: Think about your income, debts, dependents, and any future expenses like college or a mortgage. A common starting point is 5–10 times your annual salary.
Choose a policy type: Decide between term life (for temporary coverage) and permanent life (for lifelong protection and cash value).
Get quotes from multiple sources: Use online comparison tools, reach out to independent insurance agents, or contact insurers directly.
Look beyond the price: Don’t just compare premiums. Pay attention to coverage limits, term lengths, policy flexibility, and customer service ratings.
Read the fine print: Check for exclusions, waiting periods, and details on riders or renewal options.
Ask about the company’s financial strength: Look for a strong rating from agencies like A.M. Best, Moody’s, or Standard & Poor’s. A financially stable company is more likely to be around when your family needs that payout.

Finding the right life insurance policy isn’t about finding “the best one” for everyone—it’s about finding the best one for you.