---
title: "Life Insurance: How Term and Permanent Policies Work | Riskado"
description: "Life insurance pays a death benefit to the named beneficiary when the insured dies. See how term and permanent policies differ and what keeps coverage in force."
url: "https://riskado.com/insurance-terms/life-insurance/"
lang: "en"
published: "2026-06-14"
modified: "2026-10-01"
image: "https://riskado.com/og/default.jpg"
alternates:
  es: "https://riskado.com/es/terminos-de-seguros/seguro-de-vida.md"
---

# Life insurance

[Life and Health](https://riskado.com/life-and-health-insurance/) · Updated Oct 1, 2026

Life insurance is a contract in which an insurer pays a death benefit to the named beneficiary when the insured person dies, as long as premiums are paid and the policy's exclusions and conditions are met. Term life covers a set period, while permanent policies can last for life and may build cash value.

Also called: life policy, life coverage, life insurance policy, permanent life insurance, cash value life insurance

Life insurance turns your premiums into a promise: if the [insured](https://riskado.com/insurance-terms/policyholder/) person dies while the policy is in force, the [insurer](https://riskado.com/insurance-terms/insurer/) pays a stated sum to the people you name. Whether it pays depends on a few things you can check on the policy itself: the [death benefit](https://riskado.com/insurance-terms/death-benefit/) amount, whether [coverage](https://riskado.com/insurance-terms/coverage/) is term or permanent, the premium due date, the named [beneficiary](https://riskado.com/insurance-terms/beneficiary/), and any [exclusions](https://riskado.com/insurance-terms/exclusion/), riders, [grace period](https://riskado.com/insurance-terms/grace-period/) or contestability period.

## How a term policy's money works

The policyholder pays premiums, and the insurer owes the death benefit only if the policy is in force and the claim meets the contract. Take an illustrative 20-year level-term policy with a $500,000 death benefit and a $600 annual premium. These figures are an example, not an average or a quote.

Illustrative 20-year term policy: $500,000 benefit, $600 a year

Hover or tap a row to highlight it.

| Item | Amount |
| --- | --- |
| Premiums over 20 years ($600 × 20) | $12,000 |
| Paid to the beneficiary if the insured dies during the term | $500,000 |
| Difference ($500,000 minus $12,000) | $488,000 |
| Paid if the insured outlives the term, no return-of-premium feature | $0 |

If premiums stop and the policy terminates after its grace period, coverage may end, subject to any reinstatement, cash value or nonforfeiture rights, according to the [NAIC (opens in a new tab)](https://content.naic.org/consumer/life-insurance.htm).

## Term, permanent and the options in between

Term life pays only if the insured dies during the stated term. Terms are commonly issued for 1, 5, 10 or 20 years or until an age such as 65, and 10-, 20- and 30-year level-term policies, with a fixed death benefit and premium, are common, according to the [NAIC (opens in a new tab)](https://content.naic.org/insurance-topics/life-insurance). A longer term usually costs more than a shorter one, all else equal.

Term policies come with features that change price and flexibility. Renewable term can continue without new proof of insurability, but the renewal premium may be higher, and renewal may stop at a set age. Convertible term can switch to permanent coverage without new proof of insurability, generally at a higher premium. Decreasing term lowers the death benefit over time, often to match a shrinking debt. A return-of-premium feature refunds some or all premiums if the insured outlives the term, and it costs more than term without it, according to the [New York Department of Financial Services (opens in a new tab)](https://www.dfs.ny.gov/faqs/consumer_faqs/life_insurance?page=2).

Permanent policies build cash value. [Whole life insurance](https://riskado.com/insurance-terms/whole-life-insurance/) is fixed coverage meant to last for life. Universal life has flexible premiums, and its values and duration depend on premiums paid, charges and interest credits. Variable life ties cash value, and possibly the death benefit, to investment performance, subject to stated guarantees.

Riders add benefits. A waiver-of-premium rider may waive premiums after a qualifying disability or illness, and some accidental-death riders pay two or three times the death benefit for certain accidents, according to the [NAIC (opens in a new tab)](https://content.naic.org/consumer/life-insurance.htm).

## Where you see "life insurance"

The term appears in individual term, whole, universal, variable and final-expense policies, employer group life certificates and credit life policies tied to loans. You meet it on applications, quotes, illustrations, policy data pages, renewal and lapse notices, beneficiary forms, riders and claim letters.

Accidental death and dismemberment, or AD&D, is the usual comparison. It pays only for covered accidental death or specified accidental injuries and generally does not pay for death from illness, while ordinary life insurance pays regardless of whether death results from illness or accident, subject to exclusions, according to the [NAIC (opens in a new tab)](https://content.naic.org/sites/default/files/inline-files/Insurance%20Brief%20-%20Covid-19%20and%20Insurance.pdf). Health insurance pays medical expenses, not a death benefit.

## What Connecticut and New York require in a policy

Connecticut sets minimum policy terms under [Conn. Gen. Stat. § 38a-436 (opens in a new tab)](https://www.cga.ct.gov/CURRENT/PUB/chap_700b.htm#Sec_38a-436). An individual life policy must become incontestable, except for nonpayment, after two years in force from issue. It must give a grace period of at least seven days for weekly premiums, 10 days for monthly premiums and 31 days for other schedules, plus a 10-day right to examine and return the policy for a premium refund. Life policy forms must be approved before they are delivered in the state under [Conn. Gen. Stat. § 38a-430 (opens in a new tab)](https://www.cga.ct.gov/CURRENT/PUB/chap_700b.htm#Sec_38a-430).

New York requires provisions on grace periods, incontestability after two years while the insured is alive, misstatement of age, reinstatement, policy loans where applicable and a right to examine the policy under [N.Y. Insurance Law § 3203 (opens in a new tab)](https://www.nysenate.gov/legislation/laws/ISC/3203). The free-look period is generally at least 10 and no more than 30 days from delivery, with 30 days for mail-order policies and 60 days when a policy replaces another under [Regulation 60 (opens in a new tab)](https://www.nysenate.gov/legislation/laws/ISC/51). Scheduled-premium policies generally get a 31-day grace period and flexible-premium policies 61 days, according to the [New York Department of Financial Services (opens in a new tab)](https://www.dfs.ny.gov/faqs/consumer_faqs/life_insurance?page=2).

## Questions to ask your agent or insurer

1.  What type of life insurance is this, and is the death benefit guaranteed for the whole stated period? The answer separates term from whole, universal and variable life and shows whether the benefit or duration can change.
2.  What premium is guaranteed, when can it change, and what happens if I miss a payment? Renewal pricing, flexible premiums, grace periods and automatic premium loans all affect whether coverage stays in force.
3.  Who is listed as beneficiary, and how do I change it? The beneficiary designation decides who receives the money, and the [NAIC (opens in a new tab)](https://content.naic.org/es/article/consumer-insight-preparate-para-ser-beneficiario-de-un-seguro-de-vida) recommends reviewing it after major life events and at least once a year.
4.  Which values, dividends or illustrations are guaranteed, and which are projections? Projected values in whole, universal and variable policies can differ from guaranteed ones.
5.  What exclusions, contestability rules, riders and claim documents apply? Suicide provisions, the two-year contestability period and proof-of-death requirements can affect payment.

## Frequently asked questions

These come up when people buy, review or claim on a policy. Our guide on whether [it is cheaper to get insurance through an agent](https://riskado.com/is-it-cheaper-to-get-insurance-through-an-agent/) covers the buying side.

### Can an insurer cancel my life insurance if my health gets worse?

No, not for that reason once the policy is issued, according to the [NAIC (opens in a new tab)](https://content.naic.org/insurance-topics/life-insurance). Nonpayment, the end of a term, policy charges and other contract provisions can still affect coverage.

### What happens if I forget to update my beneficiary?

The insurer generally follows the beneficiary designation and policy rules in effect at death. After a marriage, divorce, birth or death, an outdated form can send the money to an unintended person or to the estate.

### Is the marketing name on my policy its legal description?

Not necessarily. In New York, a marketing name may appear on an application only alongside a generic policy description and may not appear in the policy form itself, according to the [New York Department of Financial Services (opens in a new tab)](https://www.dfs.ny.gov/apps_and_licensing/life_insurers/product/ind_termlife_20240708_pdf). Read the generic description to know what type of policy you hold.

## Related terms