Key Terms:


  • Insured

    The person who the life insurance protection is on.

  • Beneficiary

    The person or people who will receive the benefit amount if the insured were to die.

  • Policy Owner

    The person who owns the life insurance policy. This can be the insured, the beneficiary, or a third party like a trust.

  • Life Insurance Company

    The companies which issue life insurance policies.

  • Policy

    The contract between the policy owner and the insurance company which lays out the terms of the agreement.

  • In Force

    Your policy is active and you are now covered.

  • Face Amount

    The amount of money paid to the beneficiary if the insured were to die. Also, know as the benefit amount or death benefit.

  • Premium Payment

    The amount of money paid by the policy owner to the insurance company to keep the policy in force.



Life Insurance 102


What is Insurance?

Insurance is a financial tool used to protect against a possible loss. Insurance uses the principle of risk pooling or group sharing of loss. Each member of the group takes on a small loss (premium payments) to insure against an unexpected significant loss (your house burning down or a car accident).

What is Life Insurance?

Life Insurance is a contract between an insurance company and a person who is covered by the insurance contract (the insured). This contract is known as a life insurance policy. The insured pays the insurance company a small premium payment, and in return, the insurance company will pay out a much larger benefit to the insured’s beneficiary if the insured were to die.

The death benefit is paid out to the beneficiary income-tax-free as a lump sum payment.

As soon as the policy is approved and paid for, it will go into effect. Once in effect, the policy will cover any cause of death, with the exception of suicide in the first two years. Though the insured can cancel the life insurance policy at any time, the life insurance company is obligated to the insured and the beneficiary for the life of the policy.

Life insurance is the only financial product that creates an immediate estate in the event of your death. There are two main types of life insurance policies; term life and permanent life. 

Life Insurance is used mainly for three purposes.

  1. To protect against loss of income
  2. To cover final expenses
  3. To save for a tax-free retirement

Income Replacement

What would happen to your family if something were to happen to you?

Most people are income producers, and most producers have people (spouse, children, family) dependent on their income. Families survive on income. Income pays for food, shelter, clothes, and all the luxuries of life. Life Insurance is the financial tool designed to replace a person’s income if they were to die or become terminally ill.

The advantage of life insurance for the income producer (insured) is "peace of mind" in knowing that their death will not result in financial hardship for their dependents (beneficiaries). The advantage for the dependents is that they would be able to maintain their standard of living if the insured were to die. If you or your spouse were to pass away, would you be able to afford your current lifestyle? If the answer is no, then life insurance is probably for you.

Final Expenses

According to the National Bureau of Economic Research, the average out-of-pocket expenses for end-of-life necessities are around $12,000. If you or your loved ones do not have $12,000 lying around for this expense, then life insurance might be a good option for you.

Tax-free Retirement

Cash value life insurance gives you the ability to save for retirement. While working, you will make premium payments that will go towards your policy benefits and cash value build-up. When you retire, you can use the cash value to help fund your retirement. By borrowing against the cash value in your life insurance policy, the money that you borrow is tax-free. You would only be faced with a tax penalty if your policy were to lapse and be canceled. With the no-lapse guaranteed rider, you ensure that if your cash value ever reaches zero, your policy will automatically convert into a paid-up policy, so you will not have to worry about paying taxes on your retirement income.

What Life Insurance is Not

  • Life Insurance is not a lottery ticket or intended to make others rich off of the insured’s death.
  • Life Insurance is not intended to give in death what you couldn’t provide in life.

The 6 Main Parts to a Life Insurance Policy

  1. Beneficiary
    The person who receives the benefit amount if the insured dies.

What are the Benefits of Life Insurance?

  • A life insurance policy is fully guaranteed by the life insurance company after the policy is approved and the first premium payment is made.
  • Once the policy is approved and in-force the life insurance policy can’t be canceled or changed by the insurance company but the insured can cancel at any time.
  • Life Insurance benefits are paid out income tax free.
  • The Life Insurance Industry is one of the most regulated industries in the USA and policies are backed by the State Guaranteed Fund.
  • Life Insurance Policies are extremely flexible allowing you to get the coverage you need, for the time period needed, and designed to meet your budget.
  • Policy Riders - Most life insurance policies offer extra benefits with policy riders. Some of these riders are free and some will cost extra premiums.
  • Most Term Life Insurance Policies are guaranteed renewable to age 95 and be converted into a permanent type of coverage at anytime before age 70.

What are Life Insurance Policy Riders

  • A life insurance policy rider is an addition to your main policy that adds on additional benefits to your policy and / or makes your policy more flexible.
  • Riders can be free or come with an increase to your premium payments.

Top Life Insurance Policy Riders

  1. Accelerated Death Benefit
  2. Child
  3. Waiver of Premium
  4. Accidental Death
  5. Long Term Care
  6. Additional Purchase Option
  7. Disability
  8. Unemployment

Key Terms:


  • Insured

    The person who the life insurance protection is on.

  • Beneficiary

    The person or people who will receive the benefit amount if the insured were to die.

  • Policy Owner

    The person who owns the life insurance policy. This can be the insured, the beneficiary, or a third party like a trust.

  • Life Insurance Company

    The companies which issue life insurance policies.

  • Policy

    The contract between the policy owner and the insurance company which lays out the terms of the agreement.

  • In Force

    Your policy is active and you are now covered.

  • Face Amount

    The amount of money paid to the beneficiary if the insured were to die. Also, know as the benefit amount or death benefit.

  • Premium Payment

    The amount of money paid by the policy owner to the insurance company to keep the policy in force.