A life insurance policy is a contract between you and an insurance company. In exchange for regular payments, called premiums, the insurer pays out money after you die. This money goes to the people you choose as life insurance beneficiaries — usually children, a spouse or other family members.

A life insurance policy can be an important safety net if anyone depends on you financially. For example, if you’re the breadwinner, a parent, a homeowner or someone with co-signed debt, you may need life insurance coverage. Beneficiaries can use the money for any purpose, such as repaying debts, replacing your income or covering your funeral and burial costs.

In general, there are two main types of life insurance: term and permanent. Term life policies cover you for only a set period of time, such as 10 or 20 years. Permanent life insurance can last your entire life and typically includes a cash value component.

To figure out how much life insurance you need, think about your financial obligations now and in the future. Then, aim to take out a policy to match them. For example: (1) Add up any long-term debts like a mortgage or college fees. (2) Multiply your annual income by the number of years you want your beneficiaries to be covered after you die. (3) Subtract any funds or assets you currently have that can be used to cover these expenses.

It’s a good idea to compare life insurance quotes from multiple insurers before buying a policy. But when you do, make sure you compare the same features from each company. For example, select the same type of policy with the same coverage amount or term length, and give the same personal details for each quote. This will help you get a more accurate comparison.

In general, term life is cheaper than permanent life insurance. When comparing the different types of permanent coverage, whole life is typically more expensive than universal life. It’s important to find a policy that you can afford. If you miss payments, the insurer may cancel your policy, leaving your beneficiaries without a payout. Life insurance rates vary among insurers — sometimes significantly — so it’s a good idea to compare life insurance quotes from several companies before you buy.