How Does Life Insurance Work?

Underwritten by United of Omaha Life Insurance Company

09.22.2026 | ~ 8 min read

What is life insurance?

Life insurance is a legal contract between you and an insurance company, where the insurance company promises to pay your beneficiaries a death benefit after you pass, in exchange for a premium. A life insurance policy can be valuable in helping to ensure that your loved ones will have the financial support they need during a difficult time, and can be a flexible planning tool that you can tailor to fit your goals at different life stages.

A life insurance payout may provide financial relief for your loved ones in various ways, such as replacing your income, covering debts, or providing for future needs. Some policies may include living benefits that you can access while you’re alive. Living benefits may help provide an extra layer of protection by allowing access to funds from the death benefit if you experience a serious or terminal illness.

How life insurance policies work

Whole life insurance is a type of permanent life insurance that provides lifelong coverage and includes a cash value component that grows over time.

With United of Omaha Life Insurance Company, a Mutual of Omaha company, your whole life premiums will be based on:

Age: Your current age at the time of issue will be considered. Younger policyholders typically pay lower premiums because they’re considered lower risk.
Gender: Premiums may vary based on gender due to differences in life expectancy.
Coverage amount: The higher the death benefit, the higher the premium you'll pay.

While life insurance policies help protect you and your family, all policies are not the same.

Some are designed to cover temporary financial needs, while others are better suited to long-term financial planning. The right policy will help you meet your needs for financial protection. Often, you can customize your life insurance policy to make it even more valuable.

Life insurance policy and structure

Life insurance policies are structured with a payment arrangement for the policy term and an assurance that whoever you name as your beneficiary will receive a payout upon your death.

Here is the basic structure of life insurance:

Premiums: You make payments in exchange for the death benefit.
Types of life insurance: You can choose between term life, whole life, and universal life.
Duration/term: Term life ends after a set period, and permanent life lasts for your lifetime.
Death benefit: Your policy pays a specified death benefit upon your death.
Cash value: Permanent life insurance policies have a cash value component that builds over time.
Beneficiary: Your beneficiary is an individual or legal entity that receives the death benefit.

The first decision you need to make is whether temporary or permanent life insurance suits your needs better. If you only need life insurance for 20 to 30 years, a term policy may be a good choice.

A permanent policy, such as whole life or universal life, may suit you better if you want lifelong coverage and the flexibility that a cash value account provides.

Once you determine the type of policy you need, you fill out an application and wait for approval. After you pass, your beneficiaries can then file a claim with the insurance company to receive a payout.

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Different types of life insurance

The main types of life insurance are term life, whole life, and universal life. Generally, term life is designed to cover temporary situations, while whole life and universal life are designed for long-term protection.

Term Life

Term life insurance is often called “pure protection” because, in exchange for premiums, it pays a guaranteed death benefit only when the insured dies. Term life policies end after a set number of years, also known as a "term".

Level premiums: The premium amount doesn't change throughout the term.
Guaranteed death benefit: Beneficiaries are guaranteed to receive the stated death benefit amount.
High coverage: Term life policies may offer high coverage limits for lower premiums than permanent life policies.

Whole Life

Whole life insurance remains for your entire lifetime, as long as you keep paying the premiums.

Lifelong protection: It lasts for your entire life.
Cash value: Includes a cash value account that grows tax-deferred.
Level premiums: The premiums are fixed and do not change.

Note that withdrawing the cash value can reduce the death benefit.*

Universal Life

Universal life policies are similar to whole life policies, but the premiums are flexible and the death benefit is adjustable.

Lifelong protection: It lasts for your entire life.
Flexible premium: You can increase or decrease your premium according to your budget.
Adjustable death benefit: You may adjust the death benefit up or down to adapt to life stages.

Depending on your needs, you may want to buy both term and permanent life policies. Households with both policy types may be better prepared for income loss after an unexpected death than families without life insurance.²

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Rates and premiums: How life insurance costs are calculated

Insurance companies analyze large amounts of data to help them manage risks. That data then helps them predict how long you might live and how much they may have to pay out. Many factors go into this data, including application data, medical data, and data from other sources. It can all affect the amount you pay for your life insurance.

Most people can find a life insurance policy to fit their needs and budget. Younger, healthy individuals generally pay the lowest life insurance rates, so it can be beneficial to buy life insurance sooner rather than later.

These are some of the main factors that may influence how much you may need to pay for your life insurance policy:

Age: Younger individuals have longer life expectancy, so premiums are lower.
Gender: Life insurance premiums are typically somewhat lower for women than for men.
Health: Healthy individuals who maintain an average weight typically pay lower premiums than overweight individuals with health concerns.
Lifestyle: Individuals who smoke, vape, drink alcohol excessively, or have high-risk hobbies (e.g., skydiving, motorsports) pay higher premiums due to having higher risk factors.
Occupation: Individuals with high-risk jobs, such as loggers, roofers, commercial fishermen, and construction workers, have a higher risk of injury or death and generally pay more for life insurance.
Type of policy: The premiums for term insurance are usually lower than premiums for whole life and universal life.

Determine your needs for life insurance coverage by using our life insurance calculator below.

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Life insurance beneficiaries

When you fill out your application for life insurance, you will be asked to designate who you want to receive the death benefit. This is known as the beneficiary. You can designate one or more individuals, a trust, or a charity as your beneficiary.

You can also name contingent beneficiaries who would receive the death benefit if your primary beneficiary is no longer living. If you have more than one beneficiary, you must allocate a percentage to each beneficiary.

Upon your death, your beneficiaries must file a claim with the life insurance company to receive the death benefit. They will have to provide a certified death certificate and may need to fill out some forms. Once the claim is approved, the life insurance company issues the payment, usually in a lump sum.

Why life insurance is important

Unexpected moments can be difficult to plan for, but a life insurance policy can help protect the people you care about when you can't be there to reassure them during an already challenging time.

The life insurance benefit may help your loved ones be able to maintain their current standard of living by helping to pay the mortgage or other debts, medical expenses, or providing for childcare needs. It can also help ease the strain of the funeral and final expenses to allow your family to focus on healing.

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Life insurance for financial planning

Life insurance can help protect your family’s financial future. By understanding the nuances of types of life insurance, you can help ensure you have an adequate coverage limit and the right policy features to help you confidently choose coverage that matches your goals, budget, and life stage.

Frequently Asked Questions (FAQs)

1. What happens if I buy a term policy and later want a whole life policy?

Often, term policies carry a provision that allows you to convert your term policy to a permanent policy without having to undergo a medical exam. The conversion option may only apply during certain periods as stated within your policy.

2. Can I change my beneficiary after I buy my policy?

Yes. Most life insurance policies allow you to change your beneficiary at any time as long as the beneficiary is revocable and the policy is in force. You will need to complete a change-of-beneficiary form or reach out to your insurance company's customer service.

3. How long does it take for my beneficiaries to receive the death benefit?

Usually, it takes a few weeks after you have submitted the death certificate and any other required forms. Timelines can vary by insurer and claim complexity.