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Do you have a family? A business? Those who rely on your paycheck? What is life insurance? Life insurance protects these people in the event you die unexpectedly and the financial security you provided is no longer there.

How does life insurance work?

When you buy a policy, you’re paying an insurance company a predetermined amount of money (the premium) for an agreed upon time limit (the term). If you die during this term, the insurance company pays your loved ones (the beneficiaries) the life insurance payout (death benefit).

Your beneficiaries receive the death benefit tax-free and they can spend the money however they wish.

You choose the type of life insurance, how long the term lasts, and how much death benefit your family is to receive. The insurance company decides how much it will cost you based on a number of risk factors.

» Learn more: Term versus Permanent Life Insurance

With term life insurance, there are no surprises. Before you accept the policy, you know exactly what it will cost. Once you pay your first premium, the price of your policy is locked in and will never change through the entire term.

With permanent life insurance, there are many more complexities. The premiums are much higher than term life insurance because permanent life insurance is designed to provide coverage your entire life. It also has cash value accumulation potential and may pay out dividends.

Permanent life insurance may have fixed premiums or it may not. It depends on the type of permanent policy you buy.

What should I know about my term policy?

Term life insurance is temporary. Your policy likely has the option to renew or convert it (into a permanent policy) but the cost of your policy will increase if you choose either of these options.

If you choose not to renew or convert, your term policy will expire once the term is over. If you’re still insurable, you can always buy a new policy.

Your policy is contestable during the first two years. This means if you die within the first two years of owning the policy, the insurance company has the right to investigate the death benefit claim and make sure you did not misrepresent yourself on your application. This contestability right helps prevent insurance fraud.

Your policy will not pay out due to death by suicide within the first two years. Insurance companies do not want people with the intent to die by suicide buying life insurance policies. If someone with a life insurance policy dies by suicide during this time period, the insurance company pays the beneficiaries whatever premiums were paid. So, essentially, your family receives a refund on the policy.

What should I know about my permanent life insurance policy?

Like a term life insurance policy, a permanent life insurance policy has a contestability period and suicide clause. Outside of these, there are may differences between term and permanent life insurance.

A permanent life insurance policy is designed to pay out no matter when you die as long as you keep the policy inforce (active).

Most permanent life insurance policies grow cash value. You have access to this account via policy loans and withdrawals. However, if your loan balance ever exceeds the value of your policy, your policy will terminate.

Some permanent life insurance policies pay out dividends. These are profits earned from the insurance company’s investments. If you own a participating life insurance policy, it’s like you’re a shareholder.

The ins and outs of permanent life insurance policies are very complex. You can learn more here on our whole life insurance page. You can also request personalized permanent quotes if interested.

See what you’d pay for life insurance

Comparison shop prices on custom coverage amounts from the nation’s top carriers with Quotacy.

Who needs life insurance?

If anyone relies on you for their standard of living, then you need life insurance. Most people wait until they’re married or own a home before buying a policy, but there is no one life event that’s best. The sooner, the better, because the cost of buying a life insurance policy will increase as you age.


Providing for your children is your number one job. If they’re young, they are unable to provide for themselves. Your income pays for the things they need to live and enjoy life.

If you died unexpectedly, your family would undoubtedly suffer emotionally. They don’t need to suffer financially, too.

Term life insurance is perfect for young families. It’s designed to provide protection during the most vulnerable years of your loved ones’ lives and then terminate when you no longer need it.


If you’re building a life with someone, that person relies on you and your income to provide a standard of living.

The rent/mortgage payments, utility bills, everyday expenses, and even retirement are provided for together. If your income suddenly disappeared, would your partner struggle?

Term is ideal to protect each other during your growing years.

Business Owners

A small business owner likely not only has loved ones relying on them, but business partners, employees, and clients as well.

Life insurance can be used in multiple ways for a business owner. Whether it’s income replacement for their family, key person insurance on an employee, funding a buy-sell agreement, or used as collateral for a loan, life insurance is essential for a small business owner.

People with Shared Debts

If you’re married, you likely share debts with your spouse. But there are others to think of as well.

Co-signers on a loan, joint owners or account holders, and spouses in community property states all may be responsible for your debt if you die and not even realize it until they get a bill.

Life insurance can protect people who may inherit your debt.

People Who May Owe Estate Taxes

If your estate is large enough, your heirs may be dealing with estate taxes when you die. For 2021, the federal estate tax kicks in if you leave behind assets totaling more than $11.7 million. In addition, each state has its own estate tax on top of the federal.

Permanent life insurance is more ideal than term life insurance if your estate is greater than the exemption limit. Permanent life insurance can ensure your loved ones receive an inheritance rather than debt eating away at the estate assets.

Funeral and Burial Expenses

When considering life insurance, don’t forget about the cost of a funeral. Depending on your wishes, the average funeral costs between $7,000 and $12,000. Will this amount be a financial burden on someone you love? Don’t forget to figure in funeral and burial costs when applying for life insurance.

Who doesn’t need life insurance?

If no one relies on you financially and if you have no debt that would become someone else’s responsibility, then it may not be necessary. You may find that it makes more sense to invest in stocks, bonds, savings and retirement accounts.

Keep in mind, however, that the cost of buying a policy only increases as you age. So, if you believe you may need life insurance in the future, it may be prudent to purchase sooner rather than later.

How to Buy a Life Insurance Policy

With Quotacy by your side, it’s never been easier or more affordable to buy life insurance.

Our term life insurance quoting tool doesn’t require any contact information upfront to see pricing. This allows you to comparison shop in peace without being bombarded with sales calls before you’re ready to apply.

When you’re ready to apply, the online application is simple and only takes a few minutes to complete.

After you apply, your Quotacy agent will review your application to ensure the insurance company you chose when applying is the best match for your risk factors. We work with over 25 of the nation’s top-rated life insurance companies and these companies may not view lifestyle and health information in the same light.

Comparison shopping is the best way to find the best price on life insurance. Quotacy shops the market for you at no extra cost.

If there is a company that is likely to treat your application more favorably than the one you applied to, your Quotacy agent will let you know.

Pop on over to our quoting tool to start shopping and financially protect your family.

About the writer

Headshot of Natasha Cornelius, a life insurance writer, for Quotacy, Inc.

Natasha Cornelius, CLU

Senior Editor and Life Insurance Expert

Natasha Cornelius, CLU, is a writer, editor, and life insurance researcher for Quotacy.com where her goal is to make life insurance more transparent and easier to understand. She has been in the life insurance industry since 2010 and has been writing about life insurance since 2014. Natasha earned her Chartered Life Underwriter designation in 2022. She is also co-host of Quotacy’s YouTube series. Connect with her on LinkedIn.