A life insurance policy is a contract between you and an insurance company. In that contract, you agree to make payments (premiums) to the insurance company for a specified period of time, and the insurance company agrees to provide a lump-sum payout (referred to as the “death benefit”) in the event that you pass away while the policy is in force. The contract is legally binding and government-regulated. The payout, referred to as the “policy proceeds,” is typically the death benefit which can be adjusted depending on premiums, interest, and any possible policy debt, withdrawals or partial surrenders.
A premium is the price you pay to the life insurance company to secure your coverage amount. It can be paid monthly, quarterly, twice a year, or annually—depending on your preference. If you continue to make premium payments, the insurance company must meet their obligation to provide your beneficiaries with the stated benefit in the event of your passing.
A beneficiary is a person (or persons) who will receive the proceeds of the life insurance policy if the insured dies. You can name one person or multiple people as beneficiaries to receive the policy proceeds.
You are not locked into a life insurance policy, and can typically end coverage by ceasing to pay the premiums or requesting that the policy be terminated.