How Does Life Insurance Work and What Does It Cover?

Life insurance helps provide financial protection for your loved ones after you pass away. If you pass away while your policy is active, your beneficiaries can use the death benefit to cover funeral costs, outstanding debts, mortgage payments and everyday bills. Read on to learn how life insurance works, what life insurance covers and how to choose the right type of policy.

4 min. read

Table of Contents

Key Takeaways

Life insurance pays a death benefit to your beneficiaries if you pass away while your policy is active and your death meets your policy’s terms.
The most common types of life insurance are term, whole, final expense and universal, and each policy type works differently.
Aflac offers term, whole and final expense life insurance to meet different coverage needs and budgets.

What is life insurance and how does it work?

Life insurance is a contract between you and your life insurance company. Here's how it typically works:¹

You apply for coverage: You choose a policy type and coverage amount based on your needs, budget and goals.
You pay premiums: You make regular premium payments to keep your life insurance policy active.
Your beneficiaries receive a payout: If you pass away while your policy is active, your beneficiaries can file a claim and receive the death benefit.

What are common features of life insurance?

While every life insurance policy is different, many include the following features:²

Death benefit: The death benefit is a lump sum payout your beneficiaries receive if you pass away while your policy is still active. You can select your preferred coverage amount when you buy your policy.
Cash value: Permanent life insurance may include a cash value component, which is a tax-deferred savings account that grows over time. In some cases, you may be able to borrow against this account or withdraw from it while you’re still alive.
Riders: Riders are optional policy add-ons that can provide extra benefits, such as waiving premium payments if you become disabled or giving you early access to your funds for certain medical situations.

What does life insurance cover?

Life insurance is designed to help cover the financial impact of your death. Beneficiaries can typically use the death benefit however they choose. Some common uses include:

End-of-life costs, such as funeral and burial expenses
Outstanding debts, such as a mortgage, car loan or credit card balances
Everyday living expenses, such as groceries, utilities and childcare
Future expenses, such as college tuition
Charitable contributions, if you name a charity as a beneficiary

Types of life insurance

Four common types of life insurance are term, whole, final expense and universal. Aflac offers all of them except universal.

Term life insurance

Term life insurance is a temporary policy that lasts 10, 20 or 30 years. You choose your term length upfront, and your beneficiaries only receive the death benefit if you pass away within this time frame. This option may work well if you want coverage during financially sensitive life stages, such as while you’re raising children or paying off a mortgage. ³

Whole life insurance

Whole life insurance is a permanent policy that can provide lifelong coverage as long as you pay your premiums. Your beneficiaries will receive the death benefit regardless of when you pass away. These plans often include a cash value component that may grow over time.⁴

Final expense life insurance

Final expense life insurance is a type of whole life insurance designed to help cover end-of-life costs, such as funeral expenses, medical bills or other final expenses.⁵

Universal life insurance

Universal life insurance is a type of permanent life insurance that may offer more flexible premiums and a cash value component that’s tied to a market index rate or a money market rate.⁶

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What types of death does life insurance cover?

Life insurance usually provides coverage for death that results from:⁷

Natural causes, such as illness, old age, heart attack or stroke
Accidents, such as car accidents or drowning
Suicide that takes place after the policy’s contestability period, which is often two years⁸
Murder, as long as the beneficiary isn’t involved in the policyholder’s death

Coverage can vary by policy, so it’s important to review your terms carefully.

What are some reasons why life insurance may not pay out?

Life insurance may not pay out in certain situations. For example, your insurance company may deny your beneficiaries’ claim if:⁹

Your death was caused by suicide during your policy’s contestability period
You included false or fraudulent information on the application
Your beneficiary was involved in your death
Your policy lapsed due to missed premium payments
Your death was a result of war or terrorism

Which life insurance plan is right for you?

The right life insurance plan depends on your needs, budget and long-term goals.

You may consider term life insurance if you want affordable coverage for a set period.
You may consider whole life insurance if you want lifelong coverage and the potential to build cash value.
You may consider final expense life insurance if you want coverage designed to help your loved ones manage funeral and other end-of-life costs.

Before choosing a policy, carefully compare coverage amounts, premiums, term lengths and available riders.

Learn more about Aflac life insurance

Life insurance can make your loved ones' lives easier after you pass away. Now that you know how life insurance works and what it covers, you can choose the right policy for your needs.

Aflac offers several life insurance policies that can help support your loved ones financially after you pass away. Use our life insurance calculator to estimate your coverage needs, or chat with an agent today to explore your options and get a quote.

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