How Does Life Insurance Work?

(Get your answers from an expert and find the coverage you need.)
Written by Marty Agather
Written by Marty Agather

Marty Agather is the Vice President of Client Experience for TrustedChoice.com. He started his insurance career by filling multiple roles over a 10-year span in a mid-sized independent agency in Chicago, Illinois. Marty also writes for various insurance magazines and blogs and co-hosts a weekly podcast at AgencyNation.com.

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Q: How does life insurance work?

I don't understand how life insurance actually works. Where does the insurance company get the money to pay out claims? 

A: Life insurance policies work in the same way that all insurance works: the premiums of many individuals are ‘pooled’ by the insurance company to create a fund large enough to pay the losses of the individuals in the group who suffer loss.
So for life insurance, an individual purchases a policy, and their money is pooled and invested by the insurance company. When the policyholder dies, the insurance company can pay the beneficiary the face amount of the policy.

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