Life insurance is a contract between an individual and an insurance company that provides a financial safety net for loved ones if the individual passes away. In exchange for premium payments, the insurance company pays a death benefit to the beneficiaries listed on the policy when the insured person dies. The death benefit can be used for any purpose the beneficiaries choose, such as paying off debts, covering living expenses, or funding education.

There are different types of life insurance policies, but they all have one thing in common: they’re designed to pay money, usually as a lump sum, to the chosen beneficiaries in the event of the policyholders death. The two main types of life insurance are term life insurance and permanent life insurance.

• Term life insurance: This type of insurance provides coverage for a specific period, such as 10, 20, or 30 years. If the policyholder dies during the term, the insurance company pays the death benefit to the beneficiaries. If the policyholder outlives the term, the policy expires, and there is no payout.

• Permanent life insurance: This type of insurance provides coverage for the policyholders entire life, as long as the policyholder makes regular premium payments. Permanent life insurance policies also have a cash value component, which can accumulate as interest accrues on a fixed rate and a tax-deferred basis.

Before purchasing life insurance, its essential to determine how much coverage is needed, what type of coverage is best, and how it will fit into long-term financial planning. Once a policy is purchased, its important to keep up with premium payments to ensure that the policy remains in force.

When the policyholder dies, the beneficiaries must file a death claim with the insurance company by submitting a certified copy of the death certificate and any other pertinent documentation. The insurance company will then review the claim and, if its approved, issue the payment to the beneficiaries. Life insurance death benefits are typically not taxable, but beneficiaries may be required to pay taxes on any interest they receive on the death benefit.