A more thorough explanation:

Life insurance is a type of contract between an individual and an insurance company. The contract promises that if the individual dies, the insurance company will pay a certain amount of money to a person that the individual has chosen. This person is called the beneficiary. The beneficiary will only receive the money if they survive the individual who has passed away. In exchange for this promise, the individual will pay the insurance company a fee called a premium.

For example, John buys a life insurance policy from XYZ Insurance Company. He designates his wife, Jane, as the beneficiary. John pays a monthly premium to the insurance company. If John dies while the policy is in effect, XYZ Insurance Company will pay Jane the amount of money specified in the policy.

Life insurance is considered a third-party beneficiary contract because the beneficiary is not a party to the agreement between the individual and the insurance company. It is also considered a type of will substitute because the assets are transferred to the beneficiary within the individual's lifetime.