eli5: What exactly is life insurance? How does it work?

Question

Is it as simple as person x gives money to some company to be spent a certain way after person x dies? How is that any different from a will? etc..

In: 0

Answer 1

I pay $150 a month. If I die, my spouse gets $3 million. That’s life insurance.

Life insurance works because the life insurance company takes the money, invests it, and makes their money over the period they expect you to keep living.
It’s a complex risk calculation, as you become higher risk you pay more.