How Life Insurance Works

By: Dave Roos
A couple listens to a pitch from an insurance salesman.
Don Smetzer/Riser/Getty Images

Life is one big question mark: Will you be happy? Will you find love? Will you star in a reality TV show? Who knows? The only thing we can be sure of in life is that someday it will end. When, where and how are yet to be played out.

Your hope is that you die old and wealthy, able to leave your children enough money in your will to give them a head start on a successful life. But things don't always work out that way. You could cross the street tomorrow and get run over by a pack of wild Segways.


Sure, it's a morbid thought, but it makes you wonder how your family would get by without you. Would they have enough money to keep the house? Could the kids pay their own way through college? Would your wife have to cash in your stamp collection?

Life insurance should really be called "death insurance." Like other types of insurance, life insurance is protection against the unknown. When you buy life insurance, you're paying for the peace of mind that your family will be taken care of in the event of your sudden demise. Life insurance is the life jacket in the fishing boat, the air bag in the car. You hope to never have to use it, but it's nice to know it's there.

Some people call life insurance gambling. They think that you're throwing away a bunch of money on the off chance that you'll die young. But when life insurance is handled correctly, it isn't gambling at all. It's simply part of a larger economic plan whose goal is the financial security of your family.

So what is the best type of life insurance to buy and how much coverage do you need? If you don't have any kids, do you even need life insurance? Keep reading to find the answers to these questions and more!