In the event of your death, life insurance provides financial compensation to your beneficiary (someone you designate, like your spouse, child, or family will receive money).
Life insurance can cover certain costs, like burial expenses or mortgage / other debt payments. It can also replace income for beneficiaries.
Life insurance can be temporary or permanent:
Your employer may offer life insurance through a group plan.
You can purchase your own plan through a broker / agent if you're self-employed and your employer doesn't offer a group plan.
When your employer pays part / all of the premium, you'll have to pay income tax on any benefits you receive.
If you pay life insurance / disability premiums yourself, your beneficiary will receive money tax-free.
Because of the tax-free status of life insurance payments, permanent life insurance can be used as tax-shelter tool to pass your savings / investments to your family or a charity.
Disability insurance protects from unexpected illnesses or accidents that leave you unable to work / earn income. 'Disability' can mean various things, depending on your insurer and coverage.
This insurance replaces a portion of your income, up to a maximum amount (usually 60-80%) for a specified period of time.
There are 2 kinds: