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How Life Insurance Works in Texas
Types of Texas Life Insurance
Term Life Insurance
Permanent Life Insurance
Texas Life Insurance Laws
The Cost
Texas Life Insurance Resources
FAQs
EZ Can Help!
How Life Insurance Works in Texas
Simply put, life insurance is a contract between you and an insurance provider. You agree to make periodic payments (your premiums). In exchange for a lump-sum death benefit paid to your chosen beneficiary (or beneficiaries) if you die while the policy is in effect. They can put the money they receive from your policy toward retirement, mortgage payments, tuition, or other debts. Or they can simply use it as a replacement for your salary to help them maintain their current standard of living.
Those with debts, dependents, or other financial obligations that must be met even after death should seriously consider purchasing life insurance. If you are the sole breadwinner in your family, purchasing life insurance is especially important to ensure that your loved ones are financially provided for in the event of your death.
Types of Life Insurance In Texas
Life insurance policies come in a wide variety of forms. Making it possible for virtually anyone to find one that suits their needs and preferences. But, before you can land on the right policy for you, you’ll have to decide what you want and need in a policy. The first decision you’ll have to make is between the two main types of life insurance:
- Term life insurance
- Permanent life insurance
This decision will be highly influenced by the specific needs you have, especially whether you’re looking for a policy for the shorter or longer term, and how much you are willing to spend.
Term Life Insurance
Term life insurance is the most popular type of policy, and for good reason. Its premiums are significantly lower than those of permanent life insurance. This is due to the fact that term insurance does not cover you indefinitely. Instead, you choose the length (or “term”) of your policy. The term of a policy is typically 10-15 years, but it can also be 20, 25, or 30 years. If you die while the policy is still in effect, your beneficiaries will be entitled to a tax-free death benefit.
Another benefit of term life insurance is that your premium payments are generally guaranteed to stay the same throughout the term of your policy.
There are several types of term life policies available, including:
Level Term Life Insurance
Level term life insurance’s death benefit and premiums are fixed at the time of purchase and do not change throughout the policy’s term. These policies are chosen by the vast majority of term life insurance policyholders.
Annual Renewable Term Life Insurance
This type of policy covers you for one year. You can renew your policy every year, but the cost rises as you get older.
Increasing Term Life Insurance
The death benefit of your increasing term life insurance policy will grow in value at regular intervals over time. For example, your death benefit amount could increase by 5% each year. You should be aware that increasing term insurance premiums are more expensive than those of other types of term life policies, and they may vary over time.
Decreasing Term Life Insurance
With this type of policy, the death benefit gradually decreases while the premiums stay the same. Decreasing term life insurance generally offers coverage while you repay a loan or mortgage, with the death benefit decreasing over time as the loan is repaid.
Return-of-Premium Life Insurance
Return-of-premium (ROP) insurance is a type of term life insurance that allows you to receive a refund of your premium payments if you don’t die before your policy expires. ROP policies are significantly more expensive than other types of term policies, but you might find that the prospect of getting your premiums returned to you outweighs the extra cost.
Permanent Life Insurance
Permanent life insurance differs from term life insurance in several ways. First, as long as you pay your premiums, this type of policy will be in effect for the rest of your life. In addition, these policies usually include a cash value component, which is a type of savings account that earns interest and that you can borrow against or even use to pay your premiums. Finally, because of these features, the premiums for these policies are generally higher than those for term policies.
There are various types of permanent life insurance policies available, including:
Whole Life Insurance
Whole life insurance has a guaranteed death benefit and fixed premiums. In addition to providing a death benefit, a whole life insurance policy can accumulate cash value. Your cash value account will earn interest at a predetermined, tax-free rate.
Universal Life Insurance
This type of policy is one of the most flexible types of life insurance policy, since you’ll be able to adjust both the premium and death benefit amounts. Your premiums for UL policies will not only go toward the cost of insurance (COI), but also toward a cash value, which you might eventually be able to use toward paying your premiums. You can also adjust your death benefit, lowering it for lower premiums, or increasing it if necessary.
Indexed Universal Life Insurance
Indexed universal life insurance (IUL) is a type of permanent life insurance with a cash value that can rise in value based on investment in a stock index, which is a predetermined grouping of different stocks. And, like universal life, the premium for an IUL can be adjusted as the cash value of the policy grows. It could eventually become a zero-premium policy, with the cash value covering your entire premium.
Variable Universal Life Insurance
The cash value of a variable universal life (VUL) policy, like the cash value of other permanent life insurance policies, can be invested. The premium can also be adjusted in the same way that traditional universal life insurance premiums can. The difference is that variable universal life insurance policies include investment subaccounts to put the cash value to work. The subaccount structure is similar to that of a mutual fund. So, you can end up either making or losing money, depending on market fluctuations.
Final Expense Life Insurance
Final expense insurance is another type of whole life insurance that may be of interest to you, especially if you are older or in poor health. This type of policy is simple to obtain, since you will not be required to undergo a medical exam. But this type of policy can be expensive. And it pays out a relatively small death benefit, usually between $2,000 and $35,000.
The death benefit of final expense insurance is intended to cover final expenses such as burial, cremation, or funeral services. But your beneficiaries are free to spend the death benefit on anything they want, including a vacation or property tax payments.
Texas Life Insurance Laws
In the case of life insurance policies, the federal government has largely delegated the responsibility of regulating the insurance industries and protecting consumers to the states. Title 28 of the Texas Administrative Code and the 2005 Texas Insurance Code are the primary regulatory forces in Texas, but other legal provisions have also been adopted as consumer protection laws. The Texas Department of Insurance regulates the state’s insurance industry.
The following are the most important rules that may apply in your situation:
Free Look Period
A free look period is a short time after purchasing a policy during which you can review your policy. If you decide that you do not want the policy during this period, it can be canceled for a full refund. It’s important to note that there is no state-mandated free look period in Texas, so speak to your insurance company about how they handle policy cancellations before you make a purchase.
Grace Period
According to the Texas Insurance Code, all insurers must give policyholders at least one month after missing a premium payment to make up for the missed payment. During this time, your policy will remain active. And your provider will not be able to cancel it due to nonpayment.
Benefit Guarantee
While insurance companies declaring bankruptcy is uncommon, it can occur. Texas has a backup plan for beneficiaries and policy owners through the Texas Life, Accident, Health, and Hospital Service Insurance Guaranty Association. If an insurance company goes bankrupt, the Guaranty Association will cover up to $300,000 in lost death claims and $100,000 in lost cash value. These restrictions apply regardless of the size of your policy or the number of policies you have.
Settlement Timelines
The state of Texas requires that all claims be resolved quickly and fairly. To encourage this, all claims must be processed within 15 days of the insurance company receiving the claim paperwork. If a claim is not settled within 60 days, state law mandates that interest begin to accrue and be paid to beneficiaries.
The Cost
A variety of factors, including but not limited to your age, overall health, and even gender, can have a significant impact on your life insurance premiums. If you want to know how much you might end up paying for a policy, it is best to contact one of our EZ agents. They will be able to use the information you provide to find free quotes that are tailored to your specific needs.
But to give you an idea of how much life insurance costs, a 28-year-old man in Texas who does not smoke and lives a healthy lifestyle could pay anywhere from $17 to $55 per month for a $719,000 policy with a 20-year term.
Texas Life Insurance Resources
In Texas, there are several resources you can use to help you if you have any problems with your insurer or policy. These resources include:
- Texas Department of Insurance – The Texas Department of Insurance is the state’s primary source of life insurance assistance. The department’s website includes a guide to life insurance in Texas, as well as an insurance help line where consumers can get answers to their questions.
- Texas Life and Health Insurance Guaranty Association – The Texas Life and Health Insurance Guaranty Association protects policyholders in the event that an insurer goes bankrupt. Its website contains a wealth of information about what will happen in this case.
FAQs
Does Texas require life insurance?
No, you will never be forced to get life insurance. It is always your choice.
What are the best life insurance companies in Texas?
There are a lot of good ways to get life insurance in Texas. At the top of the list are Northwestern Mutual, New York Life, Lincoln Financial, State Farm, and Pacific Life.
How much does life insurance cost in Texas?
There are many things that can affect how much life insurance costs, but here’s an example. A 28-year-old woman in Texas who is in good health and wants a 20-year term policy that costs $719,000 and lasts for 20 years will pay an average of $28.81 a month for it. A healthy 28-year-old man, on the other hand, will pay about $33 for the same policy.
EZ Can Help!
We at EZ understand that you are looking for the best policy for you. So, you can secure your loved ones’ financial future without depleting your savings account. So, we make every effort to make the process of purchasing life insurance as simple as possible for you. Not only that, but every single one of our services is free of charge. You won’t have to pay anything extra to get help with anything, from answering basic questions to navigating policy selection to the enrollment process and beyond. To get started, simply enter your zip code in the space below or call us at 877-670-3560.
