Insurance Basics: What Every New Life Insurance Purchaser Should Know

Insurance Blog

For those who are looking to get their first life insurance policy, through a company like Watauga Insurance Inc, the task may feel intimidating.  There are so many companies out there, especially online, and they all seem to claim to have the lowest rates.  But which ones actually offer you the best rates?  No one wants to settle for the lowest price if it means that they do not get a valuable product in return.  Here are the basic terms and concepts you should be familiar with before purchasing a life insurance policy.

One of the first things a novice insurance buyer needs to understand are insurance premiums.  These are the monthly payments that you make to your life insurance company in return for your coverage.  These rates have declined in recent years because Americans are living longer than they did in the past.  Because of this longer life expectancy, companies are not having to pay out as much for currently insured individuals so they are able to lower the rates for new purchasers.  Because of this, many life insurance companies have to be extremely competitive to get and maintain customers, offering things such as instant quotes as a way of luring you in.

Most companies offer multiple types of plans:  either term life, whole life, universal life, and variable life.  Term life only covers you for a specific time period or term.  Usually these policies are made for five to ten years and the company will pay out to the beneficiary if the insured person passes away during that term.  But, there is no payout made if the insured person is still alive at the end of the term.  Instead, the insured has the option to renew the policy.  This may be problematic, however, since the premiums are likely to go up as the person has aged and is considered a greater potential risk.

The second type of life insurance, whole life, is just what it sounds like; it covers the insured individual for his or her whole life.  There is no term after which the policy is terminated or after which they must renew.  Because of this, whole life is considered a much better investment in the long-term.  You can purchase your insurance at a young age when you are in good health and you can lock in low premiums.

Another form of life insurance is the universal life insurance policy.  With this policy, an insured person's premiums will start low and then increase following an agreed upon schedule.  With this policy, if a person makes premium payments over the value of the policy, that payment is credited to the cash value of the policy.

A fourth option is the variable life insurance policy.  This is a policy that actually accumulates a cash value and grows as the policy does.  The cash value of the policy is invested in a variety of different stocks and mutual funds, allowing the policy to grow.  It is also called "variable" because the policy premiums may vary depending on the value of the policy during any given month.

Life insurance is an important investment that everyone should at least consider.  It can be daunting if you are new to the world of insurance to maneuver around the different terminology.  But, with this information in mind, it will be easier to navigate the depths of life insurance policies. 


5 November 2014