What is Life Insurance?

Life Insurance is a contract between an insurance company and an individual whereby the insurer agrees to pay out a death benefit to the beneficiary of your life insurance policy, and in return, you the insured agree to pay premiums to the insurance company on a regular basis.

The owner of the life insurance policy pays the premiums. The insured person may be the owner of the policy, or it may be someone with an insurable interest in the person who is insured.

Insurable interest means that you have a financial interest in the person who you want to insure for life insurance. For example, you either rely on the person for some means of financial support, or perhaps you would suffer financially if the person were to die.

So, if you rely on your parents for financial support, you have an insurable interest in them and may get a life insurance policy on them.

Another reasons adult children insure their parents for life insurance is so there is money available to pay for their elderly parents burial and funeral costs.

There are two baic types of life insurance: Term and Permanent.

Term insurance provides life insurance for a set number of years, usually form 10 to 30 years. With term life there is no cash value, just life insurance proetction. Since it's temporary, it costs a lot less than permanent life insurance which provides lifetime protection and may build some cash value inside the policy.

Keep in mind, you can own more than one life insurance policy, so you may want to purchase a term life insurance plan for your short term needs of 30 years or less (to save money), and a separate permanent life insurance policy for your longer term needs.

Permanent life insurance is also known as whole life insurance.

Here's how you can learn more about term life insurance versus whole life insurance