What Is Life Insurance?


Hey, this is Jeff Rose from WiseBread.com, your resident life insurance expert. Today we're going to answer the question, what is life insurance? Let's take a look.

So what exactly is life insurance? In simple terms, life insurance is a contract between you and a life insurance company that will pay your beneficiaries a pre-determined amount of money in exchange for a pre-determined monthly premium from you. The amount that the insurer pays is based on the amount that you decide to take out on yourself.

How Much Insurance Do You Need?

First decide how much your family is going to need if something happens to you. Your cost is determined on that amount, in addition to other factors such as how old are you, whether you have any pre-existing health conditions that could cause your life insurance premium to go up, and how long you need the life insurance — 10 years, 20 years, or 30 years. All these factors will determine how much you have to pay for your life insurance.

Insurance Is for Your Beneficiaries

A life insurance policy will pay your heirs if anything should happen to you. If you have family members who depend on you and your income or to pay off some debts, then insurance protects them. So if you're single, just starting your career and basically flat broke, you probably don't need to buy life insurance, yet. The only exception to that rule might be for your parents, who have been nice and helped fund your college career, or who may be counting on you as they grow older.

In a nutshell, that's the basics of what is life insurance. If you have any more questions, stay tuned, we've got more great videos for you. This is Jeff Rose from WiseBread.com.

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Jeff Rose, CFP, is an expert on life insurance. Read more from Jeff at his website, Good Financial Cents.

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Guest's picture

This article is a little sparse on the details... Any tips or rules of thumb on how much you'll need? Just decide for yourself seems a little unhelpful...

Guest's picture

I think one really good way to find out how much life insurance you really need is to use a life insurance needs calculator.

You can search for "life insurance calculator" online and find several good ones to use.

They are fairly straightforward to use - you just answer some basic questions about your financial situation and goals, and the calculator gives you an instant, accurate estimate of your life insurance needs based on your personal situation.

When choosing a life insurance policy make sure you understand what your goal is for your life insurance policy - what you want your life insurance plan to accomplish, now and in the future.