What is life insurance?

This answer is about Life insurance.

How a life insurance policy works

A life insurance policy has three roles: the insured (whose life is covered), the policyowner (who controls the contract and pays premiums), and one or more beneficiaries (who receive the death benefit). In many personal policies, the insured and the owner are the same person.

You apply for coverage, the insurer evaluates your health and risk (underwriting), and once the policy is issued you pay premiums on a set schedule. If the insured dies while the policy is in force, the beneficiary files a claim and, once approved, the insurer pays the death benefit.

What life insurance is typically used for

• Replacing income for a spouse, partner, children, or other dependents.
• Paying off a mortgage or other debts so survivors are not forced to sell assets.
• Covering funeral and other final expenses.
• Funding college for children.
• Providing liquidity for taxes or business succession in larger estates.

Life insurance vs. Social Security survivors benefits

Social Security survivors benefits are a separate federal program that may pay eligible family members after a worker's death, based on the worker's earnings record. They are not a substitute for private life insurance — most families use them as one layer of income protection alongside (not instead of) a life insurance policy.

Is life insurance regulated?

Yes. Life insurance in the United States is regulated primarily at the state level by each state's department of insurance, with model laws coordinated through the National Association of Insurance Commissioners (NAIC). If a life insurer becomes insolvent, state life & health insurance guaranty associations (coordinated by NOLHGA) provide a safety net for policyholders, subject to state coverage limits.