Basic life insurance pays your beneficiaries a set amount of money when you die
Basic life insurance is straightforward: you pay a monthly or annual premium, and when you pass away, the insurance company sends a lump sum to whoever you name as your beneficiary. That person can use the money however they need to — to pay off your mortgage, cover funeral costs, replace lost income, or anything else. The amount you're insured for is called the death benefit, and you choose it when you buy the policy.
The two main types are term life insurance and permanent life insurance. Term covers you for a specific number of years (10, 20, or 30 years are common). Permanent coverage lasts your whole life, as long as you keep paying premiums. Term is usually much cheaper because the insurance company knows it will only have to pay out if you die within that set period. Permanent is more expensive but never expires.
Key Takeaways
- Basic life insurance pays a death benefit to your named beneficiary when you die, and you choose the amount when you buy the policy.
- Term life insurance covers you for a set number of years and costs less; permanent life insurance covers your whole life and costs more.
- Your premium depends on your age, health, how much coverage you want, and whether you smoke.
- You name a beneficiary when you set up the policy, and you can change that person at any time.
- The death benefit is usually paid out within two to four weeks after the insurance company verifies your death.
How much death benefit you need depends on your situation
There's no single right answer, but most people think about what their family would need to survive without their income. If you have a mortgage, young children, or significant debts, you'll want more coverage. If you're retired with no dependents and savings set aside, you might need less.
A rough starting point: some people aim for coverage equal to 5 to 10 times their annual salary. Others calculate specific expenses — mortgage balance, kids' college costs, funeral expenses, plus a year or two of living expenses — and buy that amount. You can also buy multiple policies if you want, though most people buy one policy that covers their main needs.
What affects your premium
Insurance companies charge different rates based on how risky you are as a customer. Your age is the biggest factor — a 30-year-old pays far less than a 60-year-old for the same coverage. Your health matters too: if you have diabetes, heart disease, or cancer, your premium will be higher or you may not be able to buy a policy at all. Smokers pay significantly more than non-smokers.
Your job and hobbies can affect your rate if they're unusually dangerous. How much coverage you want also changes the price — more death benefit means higher premiums. When you apply, the insurance company will ask for your medical history and may require a medical exam, blood test, or both. Some basic policies skip the exam if the death benefit is small enough.
Term life insurance: coverage for a set period
With term life insurance, you choose how long you want to be covered — typically 10, 20, or 30 years. Your premium stays the same for that entire period. When the term ends, the coverage stops. At that point you can renew (usually at a much higher rate because you're older), convert to permanent coverage, or let it lapse.
Term is the cheapest way to get life insurance because the company is betting you won't die during the term. A healthy 35-year-old might pay $30 to $50 per month for $500,000 in 20-year term coverage. The same person at 55 would pay much more for a new 20-year policy, or could renew their existing policy at a higher rate. Term makes sense if you need coverage while your kids are young or while you're paying off a mortgage — once those obligations end, you may not need it anymore.
Permanent life insurance: coverage for life
Permanent life insurance stays in force as long as you pay your premiums, no matter how old you get. The most common type is whole life insurance, which has a fixed premium and a may provide death benefit. Some permanent policies build cash value — a savings component that grows over time and you can borrow against or withdraw. Universal life and variable universal life are other permanent types with different rules about how premiums and cash value work.
Permanent coverage costs much more than term — sometimes 5 to 15 times as much — because the insurance company will eventually have to pay out. A 35-year-old might pay $200 to $400 per month for $500,000 in whole life coverage. But if you need lifelong protection, want to leave money to your heirs, or want a policy that builds cash value you can use, permanent insurance does that. Some people use it as an estate planning tool or to cover final expenses they know will happen.
How to name and change your beneficiary
When you buy a life insurance policy, you fill out a form naming who gets the death benefit. This person is your beneficiary. You can name one person, multiple people (and decide what percentage each gets), or even a trust or charity. You can name a minor as a beneficiary, but the insurance company will usually require you to name a guardian or trustee to manage the money until they turn 18.
You can change your beneficiary at any time by contacting your insurance company and submitting a new beneficiary form. This matters if you get married, divorced, have children, or your circumstances change. The beneficiary you name on the policy is who gets the money — not whoever is listed in your will — so keeping it current is important. If you die without naming anyone, the death benefit becomes part of your estate and goes through probate, which is slower and more complicated.
What happens when you file a claim
When someone dies, their family or estate representative contacts the insurance company with a copy of the death certificate. The insurance company verifies that the policy was active and that the death wasn't excluded by the policy terms (for example, some policies exclude death by suicide within the first two years). Once verified, they send the death benefit to the beneficiary.
The process usually takes two to four weeks, though it can be faster or slower depending on how quickly the death certificate is issued and whether there are any complications. The beneficiary receives the money as a lump sum, though some policies let you choose to receive it in installments instead. The death benefit is generally not taxed as income to the beneficiary, which is one reason life insurance is useful for leaving money to family.
Frequently Asked Questions
Can I buy life insurance if I have a health condition?
Yes, but your premium will be higher and some conditions may limit your options. Insurers evaluate each condition differently — diabetes might add 25% to your premium, while a history of cancer might add more or make you ineligible for some policies. Applying with a broker who works with multiple companies increases your chances of finding one willing to cover you.
What's the difference between term and permanent life insurance?
Term covers you for a set number of years and is much cheaper; permanent covers your whole life and costs significantly more. Term makes sense if you need coverage temporarily (while raising kids or paying a mortgage). Permanent makes sense if you want lifelong protection or want a policy that builds cash value you can borrow against.
Do I need a medical exam to buy life insurance?
It depends on the policy and how much coverage you want. Small policies ($250,000 or less) often skip the exam. Larger policies usually require one, which includes questions about your health history, blood pressure check, and sometimes blood and urine tests. Some companies offer "no-exam" policies at higher rates.
What if I stop paying my premiums?
Your coverage ends and the policy lapses. If you have a permanent policy with cash value, you may be able to use that cash value to keep the policy active for a while, or you can surrender the policy and withdraw the cash value. If you have term insurance, you lose coverage immediately and would need to apply for a new policy if you want coverage again.
Can I have more than one life insurance policy?
Yes. Many people buy term insurance through their employer and then buy additional term or permanent coverage on their own. There's no legal limit, though insurance companies may decline to insure you if the total death benefit seems unreasonably high compared to your income — they want to prevent fraud.