LIFE INSURANCE

How does term life insurance work?

Term life insurance provides the most straightforward coverage. It’s active for a set period of time, usually 10 to 30 years, and pays out a death benefit to your beneficiaries if you die while the policy is active. That’s it — no frills, just straightforward financial protection for the people you care about. Term is the most common type of life insurance.

Like term life, whole life insurance pays out to your beneficiaries when you die, but it has more bells and whistles. For starters, it’s active for your entire life, so your beneficiaries are guaranteed to get a death benefit. It also comes with a savings component called the cash value, which can be used to supplement your nest egg and diversify your investment portfolio.

Most people just need a straightforward term or whole life policy, but there are other types out there, too. Most of these policies are catered towards niche financial planning needs, such as a specific investment plan or people who cannot get traditional coverage.

Most Americans don’t have enough emergency savings to last three months, [1] let alone enough to cover their family’s expenses for years to come. That’s where life insurance comes in — you can protect your family even if you don’t have $1 million in the bank. Life insurance provides a contingency plan for as little as $20 to $30 a month, and ensures your family isn’t left scrambling for funds after you’re gone.

Life insurance does more than just offer peace of mind and financial security. It can be used as a tool to minimize tax liabilities and protect your financial assets.

The tax-free payout (and the financial security that comes with it) is the biggest benefit, but there are other advantages, such as the option to use your policy as a savings account. 

If you're a high earner who has maxed out your investments, whole life insurance can be added to your portfolio. But for most people, it's an insurance product first and foremost.