Life insurance is a fundamental part of financial planning, yet many people don’t fully understand how it works or why it’s so important. In this article, we break down the basics to help you understand what life insurance is, how it works, and who needs it.

What Is Life Insurance?
Life insurance is a contract between you and an insurance provider. In exchange for premium payments, the insurer promises to pay a lump sum (the “death benefit”) to your chosen beneficiaries upon your death. This benefit can be used for funeral costs, paying off debts, supporting dependents, or funding education.

Types of Life Insurance
There are two main categories:

Term Life Insurance

Covers you for a specific period (10, 20, or 30 years).

Pays out only if the policyholder dies during the term.

Lower premiums, great for short-to-medium-term needs.

Permanent Life Insurance (Whole or Universal)

Offers lifelong coverage.

Accumulates a cash value that grows over time.

Higher premiums but includes savings/investment components.

Why Do You Need Life Insurance?
To replace income: Your family may rely on your earnings.

To cover final expenses: Funerals and medical bills can be costly.

To protect your business: Business partners often insure each other.

To leave a legacy: Create wealth or donate to a cause.

Who Should Get Life Insurance?
Parents

Spouses

Homeowners with mortgages

Business owners

Anyone with financial dependents

Even if you’re young and healthy, the earlier you buy life insurance, the lower your premiums will be.

How Much Coverage Do You Need?
A general rule is 10–15 times your annual income, but you should also consider:

Current debts

Number of dependents

Education costs

Funeral expenses

You can also use life insurance calculators offered by many providers online.