Your complete guide to life insurance and how it works

Life insurance is an affordable way to provide financial support to the people you love after you die. It can be relatively straightforward, but you’ll want to understand how it works so you can get a policy that’s right for you. Whether you’re just getting started and wondering what life insurance is, or you have questions about the ins and outs of your policy, our library of explainers has what you need. And for any life insurance questions you want to talk over with a real person, our experts are always here to help you out.

So what does life insurance cover? Your beneficiaries can use it to cover many types of expenses, including:

• Co-signed debt, including student loans

• Mortgages

• College expenses for your kids

• Living expenses for your family

• Home labor expenses (cooking, cleaning, etc.)

• Burial expenses

• Estate taxes that your heirs must pay for other assets

• Medical expenses

• Charitable contributions

To get this money after you die, your beneficiaries will fill out a death claim form and submit it to the insurer. Once the insurer reviews the claim, your beneficiaries will receive the funds to use however they want.

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.

To fully understand your life insurance policy, there are a few terms you need to know. No matter what type of policy you buy, life insurance consists of these five components:

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.

Anyone with financial obligations should get a policy. Life insurance does more than just provide money for everyday living expenses. It can pay for estate taxes, provide money for college, cover outstanding debts, build generational wealth, and pay for your funeral (which can cost upward of $10,000).

People who need life insurance include:

When you buy a policy, you’ll need to decide on a coverage amount — how much your beneficiaries will receive as a death benefit. As a general rule, our experts recommend you get about 10 to 30 times your income in coverage.

To calculate a more precise figure, you can use the DIME method, which tallies up your outstanding Debt, annual Income for the number of years that you’ll provide for your family, the amount left on your Mortgage, and cost of your children’s Education. That number is a good starting point, but you may need less or more depending on personal factors such as other savings or whether you’re supporting older family members.

How much you pay for life insurance depends on your health profile and how much coverage you’re buying. A healthy adult in their 30s can expect to pay under $30 a month for a $500,000 policy that lasts 20 years. Buying life insurance does get more expensive as you get older, but there’s always a way to get coverage that fits into your budget.

Getting life insurance as soon as possible is the best way to get the most affordable policy. It also protects you from any health changes that could increase your rates. Other factors, like working in a dangerous occupation, having serious medical conditions that run in your family, or smoking, can impact your rates, too. A Policygenius agent can advocate on your behalf to get you the best rates for your profile.

Methodology: The chart above reflects rates, as of December 1, 2021, for male and female non-smokers in a Preferred health classification with a 20-year term length. Rates are based on the monthly Policygenius Life Insurance Price Index. Prices in the index are determined by internal actuarial rate tables for 10 life insurance carriers that offer policies through the Policygenius marketplace: AIG, Banner Life, Brighthouse, Lincoln Financial, Mutual of Omaha, Pacific Life, Protective, Prudential, SBLI, and TransAmerica.

You don’t have to wait until you hop on the phone with an agent to get a sense of what to expect. Check out our free cost calculator to estimate how much a policy will cost you. Once you figure out how much it might cost, you can compare quotes from insurance companies to find the policy that’s right for you.

Life insurance is different for everyone, and how much coverage you need or how much you’ll pay won’t be the same as your friends, family, or even your spouse. Read more about life insurance costs so you know what to expect when you apply.