Life insurance pays designated beneficiaries upon the death of the insured. These contracts serve to protect dependents and family members from financial hardship upon the loss of their loved one. Although family members most frequently benefit from life insurance policies, the insured person decides who will receive the insurance payments after their death.

Up to four parties can involve themselves in a life insurance policy: the insurance company, the insured, the policy owner and the beneficiary. Although people buy coverage for themselves, a policy can cover more than one person. Each covered person can have their own beneficiaries. Sometimes third parties own life insurance policies that cover other people, as is the case with employer-provided benefits. Employees usually get to choose the beneficiaries of work-related policies. In some cases, employers buy life insurance on key executives to help protect them when executives and specialized employees die.

Those who buy life insurance policies must make sure they always pay their premiums on time because insurers will not pay benefits in the event of lapsed coverage. People often think about life insurance in a family setting. For example, the money can help hire help to fill the role of a missing caregiver. Also, life insurance helps a family keep its standard of living when a primary wage-earner dies. Mortgage companies often require homeowners to buy life insurance to help guarantee the continuity of loan payments in the event a borrower dies.

Life insurance comes in three primary forms. Term life insurance charges fixed monthly payments during a term which could last for ten years or more. Premiums usually increase after the end of a term to reflect the change in the age of the insured. Term life insurance has no cash value, so they pay only the amount of contracted death benefits when covered individuals die. People often buy term life insurance because of its affordability.

Another type of life insurance, whole life insurance, charges fixed payments over a predefined schedule. While in force, these policies pay benefits upon the death of the insured. Payments often end when the insured reaches a certain age, but even when they outlive that age, the policy still pays guaranteed death benefits. These policies build cash value, so owners can sell them or borrow money against them. Universal life insurance policies act like whole life policies except they can be paid at irregular intervals. Coverage of these policies never ends. These may also accrue cash value if the policy is used for savings purposes.