Before you decide to invest in life insurance policies, it is important to understand “what is life insurance?” The most generalized form of definition of life insurance is that it is a policy that will pay your family a specific sum of money if you pass away. There are certain key features of life insurance policies. First of all, it is like an agreement or contract signed between a person or a legal entity and an insurance company. The sum of money that will be paid depends upon a premium, which you need to pay in exchange for the policy.