A life insurance policy is a legally binding contract between an insurance company and the person who buys the policy, commonly called the "insured" or the "policyholder" on the Individual side.

In exchange for payment of a specified sum of money, called the "premium," the life insurance company agrees to pay the "beneficiary" (or for some benefits, the "owner") of the policy a fixed or otherwise determinable amount of money, if circumstances that are set out in the policy, occur.

While on a life insurance policy the most common event is the death of the person who is insured in which case the payment is made to the beneficiary, depending on the type of policy, it sometimes may be the insured person's attaining a certain age, or the owner's requesting to surrender the policy for its cash value, or to take that cash value out in the form of monthly payments for a set number of years or the insured's life.