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How Does Life Insurance Work?

Life insurance is all about caring for those who depend on you, and having peace of mind knowing that your loved ones will have some financial protection if you were to pass away.

If you’re wondering how life insurance actually works, you’re not alone. Here’s an overview of what you need to know.

  1. On screen: Person’s silhouette (blue) in the middle of the screen. Around them in a rotating circle of documents, each one with a big red question mark on it.

    Narrator: It’s the right time for life insurance – but you can’t decide which policy type is right for you.

    On screen: Continue from previous scene.

    One of the question marks transforms into a check mark. The rest of the documents disappear. The check-mark document expands to take up most of the screen, and the check mark transforms into the AmFam logo.

    Narrator: Luckily, American Family Life Insurance Company is here to help with all your life insurance needs!

    On screen: Continue from previous scene.

    Below AmFam logo, the following text appears:


    TERM VS. PERMANENT (knockout, blue font, all caps)

    Narrator: To start, there are two main types of life insurance: term life insurance and permanent life insurance.

    On screen: New scene.

    Text at top of the screen:


    (knockout, blue font, all caps)

    Below, we see a bar chart with bars at:

    • 10 years
    • 15 years
    • 20 years
    • 30 years

      (blue bars, labels beneath each bar)

    • (labels are blue, myriad, sentence case)

      Narrator: Term life insurance is a temporary policy that lasts for a set amount of time – typically 10, 15, 20 or 30 years. Term life only delivers a payout if the insured passes away while the policy is active.

      New scene.

      On screen: Text at the top of the screen:


      (knockout, blue font, all caps)

      One by time, timed with the VO, three icons pop up in a triangular configuration:

    • House icon for mortgage
    • Three small silhouettes for children
    • Graduation cap for education

      Narrator: Term life insurance is perfect for when you want financial protection for a limited amount of time – for example, when you:

    • Have a mortgage or other big loan
    • Have children in the house
    • Or are paying or planning for post-secondary education

      On screen: Continue scene.

      In the middle of the 3 icons, a 4th icon of a dollar sign appears.

      Small, small text at bottom of screen (myriad):

      Narrator: Term life may be more affordable (or a lower price than) permanent life insurance. Contact your agent for more information. Plus, term life can be more affordable than permanent life insurance policies.

      On screen: New scene.

      AmFam’s four life insurance icons lined up (see this video at 0:06 - )

      A blue box appears around Simplified Term Life and Term Life icons.

      Below the box, on-screen text (myriad, sentence case):

      For these polices, the premium and coverage amount stay the same for the entire term you choose.

      Once the initial term ends, you may renew the policy annually with increased premiums.

      Disclaimer in small font at bottom of screen:

      *Policies can be renewed up to the policy anniversary on or after the primary insured’s 95th birthday.

      Narrator: To meet your unique needs, American Family Life Insurance Company offers two types of term life insurance: DreamSecure Simplified Term Life and DreamSecure Term Life.

      On screen: New scene.

      Text at top of the screen:


      (knockout, blue font, all caps)

      On left side, text: TERM LIFE

      Below this text, we see a blue heart with four small pop-up circles around it, labeled: 10 yrs, 15 yrs, 20 yrs, 30 yrs.

      On the right side, text: PERMANENT LIFE

      Below this text, a red heart surrounded by the circle arrow (see 0:48 of for the circle arrow)

      Text at bottom of screen:

      Permanent life insurance lasts your whole life (as long as premiums are paid).

      (myriad, sentence case)

      On screen: Permanent life insurance is another common type of life insurance. Whereas term only covers a set number of years, permanent life insurance can last your whole life!

      In fact, whole life insurance is one type of permanent life insurance.

      On screen: New scene.

      We see a line of silhouettes.

    • One silhouette with a graduation cap (college grad)
    • One silhouette with a big skirt, holding a bouquet of flowers and with a veil (bride)
    • One silhouette with a tie and/or briefcase (professional)
    • One silhouette with a cane (elderly)

    One-by-one, a shield with a heart inside of it appears above each silhouette.

    Narrator: Permanent life insurance can help provide financial protection at any – and every – point of your life.

    On screen: Continue scene.

    Next to college grad, a second silhouette + dog silhouette appears. Next to shield with heart, a dollar sign appears.

    Next to bride, a groom (in tux) appears. Next to shield with heart, a dollar sign appears.

    Next to professional, a second silhouette + 2 child silhouettes appear. Next to shield with heart, a dollar sign appears.

    Next to elderly, a second adult silhouette + 1 child silhouette appear. Next to shield with heart, a dollar sign appears.

    Narrator: It can help your loved ones cover things like funeral costs or paying off debts, can be used to leave a legacy to loved ones, and even builds cash value over time!

    Plus, with a variety of coverage options available, you can build a permanent life policy to fit your unique needs and specific budget.

    On screen: New scene.

    AmFam’s four life insurance icons lined up (see this video at 0:06 - )

    A blue box appears around the Whole Life icon.

    Narrator: So it’s always a good time to consider a DreamSecure Whole Life Policy from American Family Life Insurance Company.

    On screen: Continue scene. Box from previous scene disappears.

    Show different combinations (e.g., second icon vanishes, with plus signs showing between first, third, and fourth icon…  then reset to all four icons, first and fourth icon vanish with a plus sign showing between the second and third, etc.)

    Narrator: It’s important to remember that term and permanent life insurance isn’t an either/or question – you can own multiple policies for even more customized protection!

    On screen: New scene.

    Lone red silhouette appears in the middle of screen. Next to it, pops in a second blue silhouette on one side and a dark gray house on the other side.

    At the top, a blue heart inside a shield, labeled DREAMSECURE SIMPLIFIED TERM LIFE

    (all caps, red, knockout)

    Narrator: For example, let’s consider Alexis. She and her husband just bought their first home, so they each get a DreamSecure Simplified Term Life policy for the duration of the mortgage to help make sure the other won’t lose the house should one of them pass away.

    On screen: Continue scene.

    A light blue baby appears in the arms of the first (red) silhouette.

    At top, a second blue heart inside a shield, labeled


    A plus sign between the two hearts/labels.

    (all caps, red, knockout)

    Narrator: After the birth of their first child, Alexis decides to add a second term life policy – this time a DreamSecure Term Life – for additional coverage.

    Continue scene.

    On screen: The baby vanishes from the arms of the first (red) silhouette. A third, adult silhouette (same light blue as vanished baby) appears. It waves to the parents as it moves off screen.

    While the above is happening, the two hearts & labels vanish from the screen. In their place fades in a red heart inside a shield, labeled


    (all caps, red, knockout)

    Narrator: When the kids grow up and move out, Alexis and her husband look toward their future. They decide now’s the perfect time to add a DreamSecure Whole Life Insurance policy.

    On screen: Continue scene.

    The middle (red) silhouette vanishes. The light blue silhouette re-appears and unites with the blue silhouette.

    Above, the red heart beats, and shields with dollar signs appear above the two silhouettes as well as above the house.

    Narrator: Decades later, When Alexis passes peacefully, her survivors – her husband and her children – have her whole life insurance policy to cover expenses such as funeral costs.

    They love and appreciate how well Alexis has taken care of them financially, even after she’s gone.

    On screen: New scene. Standard end card.

    AmFam logo.


    Contact your Agent

    or visit

    Narrator: Ready to learn more about how life insurance can help make sure your loved ones are financially protected after you’re gone? Contact your American Family agent today.

    On screen: Policy Forms: ICC18-33 (10), ICC18-33 (15), ICC18-34 (20), ICC18-35 (30), L-33 (10)(ND), L-33 (15)(ND), L-34 (20)(ND), L-35 (30)(ND), L-33 (10)(SD), L-33 (15)(SD), L-34 (20)(SD), L-35 (30)(SD), ICC18-36 (10), ICC18-36 (15), ICC18-36 (20), ICC18-36 (30), L-36 (10)(ND), L-36 (15)(ND), L-36 (20)(ND), L-36 (30)(ND), L-36 (10)(SD), L-36 (15)(SD), L-36 (20)(SD), L-36 (30)(SD), ICC19-97 UL, L-97 UL (ND), L-97 UL (SD), ICC17-225 WL, L-225 (ND) WL, L-225 WL, ICC17-226 WL, L-226 (ND) WL, L-226 WL, ICC17-227 WL, L-227 (ND) WL, L-227 WL, ICC17-223 WL, L-223 (ND) WL, L-223 WL, ICC17-224, L-224 (ND) WL, L-224 WL, ICC17-228 WL, L-228 (ND) WL, L-228 WL

    Life insurance underwritten by American Family Life Insurance Company, 6000 American Parkway, Madison WI 53783 | © 2020  019494

Life Insurance Basics

For starters, life insurance protects the special people in your life by providing them a financial safety net in the event that you pass away. It can help replace your lost income and other ways you financially provide for their needs — everything from day-to-day necessities like groceries and electric bills, to bigger ongoing expenses like mortgages or tuition payments. Read more to learn how to calculate your life insurance needs.

Life insurance pricing is determined based on the amount, type and length of coverage you select, as well as things like your age, sex, health, medical history and other factors.

Once you’ve purchased a policy, you pay premiums on a regular basis. And if you pass away while the policy is in effect, the insurance company will pay your beneficiaries the amount of money you specified in your policy. Learn more about choosing a beneficiary.

Types of Life Insurance Coverage

When you’re shopping for life insurance, you’ll want to explore the two main types: temporary and permanent. Temporary life insurance provides coverage at a lower initial cost. This includes term life insurance, like American Family Life Insurance Company's DreamSecure Simplified Term Life Insurance and DreamSecure Term Life Insurance, which remains in effect for a specific term or length of time at a set premium. Term life is popular among those who want temporary coverage at a lower cost for larger amounts to help pay off mortgages, loans or other debts, replace income, pay for education costs, and more.

Permanent life insurance provides protection for the length of your entire life, not just part of it. This includes DreamSecure Whole Life Insurance, with coverage for your whole life and premium payments that remain the same regardless of changes in your health or age. Similarly, universal life insurance offers long-term protection, but has flexible premiums that you can adjust as your circumstances change, such as our DreamSecure Flexible Life Insurance.

Both whole life and universal life policies can build cash value that you can access during your lifetime. These policies are popular among those who want longer-term protection, and the ability to build the cash value of the policy over time. (Note: loans or cash value withdrawals may affect the policy’s death benefit and could require the need for additional premium payments to keep the policy in force.)

Life Insurance for Final Expenses

Life insurance can help your loved ones cover the costs for expenses they’ll face after your death. It can help relieve the financial burden for final expenses, such as funeral home costs, service and burial — among other things. Learn more about life insurance and final expenses.

Is the Death Benefit from Life Insurance Taxable?

The short answer is no, most of the time. The beneficiaries will usually receive the death benefit tax-free.

How Is a Death Benefit Paid Out?

Your life insurance benefit will be paid when you — or whomever the insured is — pass away and the beneficiary files a death claim. The beneficiary will need to submit proof of death, usually a death certificate, and the insurance company will review the claim.

Beneficiaries are usually paid with a lump sum, meaning they’ll receive the entire death benefit in one payment, or they have the option to be paid in installments that can be set up a variety of ways.

Getting life insurance is one of the best decisions you’ll ever make. It’s a smart, affordable way to make sure those you love have the financial protection they need. Your American Family Life Insurance agent can help answer any questions you have regarding your life insurance coverage — connect with them to ensure you’re protecting what matters most.

Policy Forms: ICC18-33 (10), ICC18-33 (15), ICC18-34 (20), ICC18-35 (30), L-33 (10)(ND), L-33 (15)(ND), L-34 (20)(ND), L-35 (30)(ND), L-33 (10)(SD), L-33 (15)(SD), L-34 (20)(SD), L-35 (30)(SD), ICC18-36 (10), ICC18-36 (15), ICC18-36 (20), ICC18-36 (30), L-36 (10)(ND), L-36 (15)(ND), L-36 (20)(ND), L-36 (30)(ND), L-36 (10)(SD), L-36 (15)(SD), L-36 (20)(SD), L-36 (30)(SD), ICC19-97 UL, L-97 UL (ND), L-97 UL (SD)ICC 13-97 UL, L-97 UL (AZ, ND, SD only), ICC17-225 WL, L-225 (ND) WL, L-225 WL, ICC17-226 WL, L-226 (ND) WL, L-226 WL, ICC17-227 WL, L-227 (ND) WL, L-227 WL

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Related Topics: Buying Life Insurance , Whole Life , Term Life