life insurance

noun
Updated on: 26 Jul 2017

Definition of life insurance

:insurance providing for payment of a stipulated sum to a designated beneficiary upon death of the insured

First Known Use of life insurance

1781


Financial Definition of LIFE INSURANCE

life insurance

What It Is

Term life insurance is a policy which provides financial coverage during a set amount of time. Often considered the "simplest" form of life insurance, it is best suited for providing coverage or income for a short term and on a limited budget.

How It Works

A term life insurance policy covers the policy-holder up to the age specified in the contract. Should a policy holder die before the term is over, a beneficiary will receive a death benefit. Term life insurance policies may be renewed for a premium at the end of a given term if the policy holder's life should exceed the term.

Term life is less expensive that universal life insurance because it does not build up any equity. You are fully covered during the term of the policy, but you do not receive cash back when the term is over.

To illustrate, suppose Bob has a term life insurance policy that covers him financially in the event of death until the age of 40. Should Bob somehow die before the age of 40, the terms of the policy cover him and pay a financial benefit. If Bob lives past the age of 40, however, his policy will not yield any financial benefit. He must renew the policy for another term under new conditions.

Why It Matters

Term life insurance is generally considered one of the more inexpensive ways to secure a death benefit. Because term life insurance will expire when the policy holder reaches a certain age, it is important that policy-holders ensure that renew their the policy when it expires.

Term life is popular with young families who need protection, but also need to keep prices low. It is often intended for income-replacement needs.


LIFE INSURANCE Defined for English Language Learners

life insurance

noun

Definition of life insurance for English Language Learners

  • : a type of insurance that pays money to the family of someone who has died


Law Dictionary

life insurance

noun

legal Definition of life insurance

:insurance providing for the payment of money to a designated beneficiary upon the death of the insured — see also endowment insurance
ordinary life insurance
:whole life insurance in this entry
straight life insurance
:whole life insurance in this entry
term life insurance
:life insurance that provides coverage for a set term and does not accumulate cash surrender value
universal life insurance
:life insurance characterized by flexible premiums, benefits, and payment schedules, by the indexing of cash value to money market interest rates, and by the periodic reporting of current value and company costs charged to the account
universal variable life insurance
:variable universal life insurance in this entry
variable life insurance
:life insurance in which all or part of the cash value of the policy is located in a tax-deferred investment portfolio with risk assumed by the insured for investment losses — compare variable annuity at annuity
variable universal life insurance
:universal life insurance that includes the investment component of variable life insurance called also universal variable life insurance
whole life insurance
:life insurance that provides coverage over the life of the insured and that can be sold for surrender value or used as the basis of low-interest loans called also ordinary life insurance, straight life insurance

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