Life insurance is coverage that pays beneficiaries a stated sum if the insured party dies. In exchange for this payout, the insured pays the insurer a designated premium (which is based on actuarial statistics) at intervals over the term of the policy. The intent behind this arrangement is to provide the beneficiaries with a sufficient income to replace the income that had been earned in the past by the insured. The amount of life insurance purchased depends on the standard of living that the insured wants to maintain for the beneficiaries.
Life insurance is especially useful for younger families that have not yet had time to build up a sufficiently large estate to provide for the survivors if the primary wage earner dies. The need for life insurance tends to decline over time as families build up estates of a sufficient size to provide survivors with an adequate income. Also, since the premium payments for some types of life insurance policies increase in size as the insured ages, the cost-benefit tradeoff of having life insurance will decline over time.
Life insurance policies should be reviewed at regular intervals to see if they still provide the type of coverage needed by the insured party's beneficiaries. This analysis may result in a change to a different type of insurance policy (such as term life or whole life) and/or a different payout amount.