What Life Insurance Actually Covers

Life insurance functions as a contract in which the policyholder pays premiums to an insurer in exchange for a promise: once the insured person dies (and the policy is valid), the insurer pays a death benefit to designated beneficiaries. The death benefit is delivered as a lump sum, an income stream, or a mixture of both. That payment is designed to cover things like final expenses (including funeral and medical bills), replace lost income, pay down debts or mortgages, and provide a financial cushion for surviving dependents

The purpose of the contract is financial protection: if someone counts on your earnings, or if an unexpected death would create a financial hardship for those you leave behind, life insurance stands in for your ability to provide.

See Full Page