There are three main types of life insurance: Term Life Insurance (coverage for a specific period), Whole Life Insurance (lifelong coverage with a savings component), and Universal Life Insurance (combining flexibility by allowing adjustments in coverage and premiums). Final Expense insurance is also available, offering coverage for end-of-life expenses. Learn more in our quick guide: Types of Life Insurance.

Basically, life insurance is a contract between you and an insurance company. You pay a premium, and in return, the insurance company agrees to pay a sum of money to your beneficiaries upon your passing. When you buy a life insurance policy, you must name one or more beneficiaries who will receive the death benefit upon your passing. The death benefit can be paid in a lump sum or installments, depending on what your beneficiaries prefer. Read more in our blog post, How Does Life Insurance Work?

Life insurance pays out the value of your policy, which is determined by you when you first select and sign your policy. Typical values of a policy include but are not limited to $50,000, $100,000, $250,000, $500,000, and $1,000,000.

It’s important to know that life insurance becomes more expensive as you get older. If you plan ahead for your needs, you can lock in a lower monthly premium when you’re younger. Of course, you should also get life insurance when you have specific needs. Starting a family or getting a mortgage? Getting life insurance at this time is a good idea so you can protect your family’s financial future.

The cost of life insurance is not fixed and is dependent on a number of factors, including factors such as your lifestyle and habits like smoking and your weight. The most important thing is your age. The older you get, the more expensive your monthly premium becomes. Lastly, the value of your policy is something you’ll choose when you sign up for your policy which will also affect the monthly cost of your life insurance policy.

While there are some exceptions, normally life insurance payouts are not taxable, as they are considered a return on the premium you’ve paid. Always seek advice and confirm your tax questions with your tax professional.

An annuity is a financial tool designed to help individuals have a guaranteed retirement income forever or for a set number of years with an end goal of ensuring you do not outlive your money. In contrast, life insurance provides a payout to your beneficiary in the event of your death during the covered period. While both products provide financial security, annuity and life insurance typically focus on different times in life.

A 401(k) is an employer-sponsored tax-advantaged retirement account. A life insurance policy is something that you purchase and provides a payout in the event of your death.