What type of insurance pays your beneficiaries when you die?

What type of insurance pays your beneficiaries when you die? Life insurance does.

Life insurance is a contract in which an insurer promises a death benefit to a designated beneficiary when the insured person dies, provided the policy is active and its terms are met. The policyholder pays premiums, either regularly or as a lump sum.

The owner, insured person, and beneficiary can be different people. For example, one spouse may own a policy insuring the other and name children as beneficiaries. Benefits are commonly paid as a lump sum, though some policies allow installment payments or an annuity.

A common mix-up is assuming every policy pays automatically under every circumstance. Policies can contain exclusions, and term life insurance normally pays only if death occurs during the selected term. Permanent policies may also build cash value while remaining in force.