Texans who are shopping for their first life insurance policy are reaching a huge milestone. It can also be a confusing maze of new words, phrases, and abbreviations you never knew existed. How can you make sense of everything in your policy if you’re not even sure what everything means?
As your shop for life insurance in Texas, keep these definitions — from agents vs. brokers to whole life vs. term life – in mind.
Texas Life Insurance Policy Owner
The policy owner is the person or entity that owns and pays for the life insurance policy. In most cases, the policy owner is the same as the named insured — in other words, the person who pays for the policy is the same person named in the policy. However, policy owners can be spouses, relatives, or even a company.
Tip: The policy owner, named insured, and beneficiaries can all be different people. If this is the case, make sure that the policy owner is staying on top of the premium payments so that your beneficiaries can receive the full death benefit.
Life Insurance Premium in Texas
Once you sign your life insurance policy, you’ll need to start paying the insurance company. This payment is known as the premium. Premiums can be paid monthly, quarterly, annually, or as a lump sum. The amount you pay in premiums depends on factors such as your current health, your family history, and the type of life insurance coverage you want.
Tip: Life insurance premiums in Texas work a lot like auto insurance premiums — if you stop paying, then the insurance company will stop providing coverage.
Term Life Insurance in Texas
Term life insurance provides coverage for a fixed amount of time, or term — typically between 10 and 40 years. If you die during the term of the policy, then your beneficiaries receive the full death benefit as long as you’ve kept making premium payments. If you survive after the term ends, then the policy expires. You don’t get any of the money you’ve paid in back.
Most people prefer term life insurance in Texas because of its simplicity and low premiums. However, term life insurance doesn’t have a cash value, which means that you won’t get back the value of your premium payments after the term ends. On the other hand, term life insurance offers a guaranteed death benefit. Your beneficiaries receive the full death benefit payment no matter how much you’ve paid in premiums.
Tip: Term life insurance is a great option if you have young children or outstanding debts such as a mortgage. The idea is to provide a financial cushion before your children are financially independent or your house is paid off in case you die prematurely.
Whole Life Insurance in Texas
Whole life insurance is a type of permanent life insurance. Like term life insurance, you pay an agreed premium into the policy, either as a lump sum or over time. However, once you’ve paid your entire premium, then whole life insurance covers you for life, and your beneficiaries are guaranteed to get a death benefit when you die.
Whole life insurance is a little more complicated than term life, but that’s not necessarily a bad thing. Unlike term life insurance, whole life can accumulate cash value and interest over time. Your beneficiaries will be entitled to the cash value of your policy in addition to the guaranteed death benefit.
Tip: While whole life insurance provides better coverage than term life, it also comes with higher premiums — 10 to 15 times higher. That said, whole life insurance in Texas is a good option if you want to make sure your spouse and loved ones are always financially protected.
Employer-Sponsored Life Insurance
Many Texas companies offer employer-sponsored life insurance as a regular benefit to their employees. It helps them attract a higher caliber of employee and it helps the employees have life insurance at a cheap – or no – cost. Employer life insurance is group insurance, which typically means the company has group buying power. Your life insurance benefits as a Texas employee could range from a sizable amount to a portion of your salary. It’s intended to help your beneficiary, typically a spouse or partner, recover somewhat financially from the sudden loss of one income.
Tip: If your employer offers life insurance benefits, you should sign up. For a cheap price, you’ll be protecting those closest to you with some form of financial payout if you should die suddenly.
Life Insurance Annuity in Texas
An annuity is a special contract between you and a life insurance company. First, you agree to pay the insurance company a lump sum or a fixed series of payments. In return, the insurance company agrees to pay you back over time at regular intervals. The payback time can be over a fixed period — 25 years, for instance — or for the rest of your life.
Once you pay into your annuity, you can start receiving payouts immediately — known as an immediate annuity — or at a predetermined time — known as a deferred annuity. Survivorship annuities allow you to pass on the value to your spouse or another beneficiary if you die before the annuity is fully paid out.
Tip: You should only invest in an annuity if you’re sure you won’t need the money for a while. Like other retirement accounts, you’ll have to pay high fees and taxes for early withdrawals.
Life Insurance Beneficiary in Texas
When you purchase a life insurance policy, you’ll need to designate someone who receives the insurance benefits after you die. This person (or people) is known as a beneficiary.
Most people who get life insurance in Texas designate spouses, children, and other close family members as their beneficiaries. However, you can name anyone as your beneficiary, including unmarried partners, special-needs relatives, and even charities.
You’ll need to name a beneficiary once you get life insurance in Texas, but you can change your mind at any time. In fact, it’s a good idea to regularly review your beneficiary list. Growing families, separations, and other life events often mean a change in life insurance beneficiaries.
Tip: Beneficiaries aren’t just for life insurance. Make sure you designate beneficiaries for your 401(k), savings account, retirement accounts, and other financial assets.
Cash Surrender Value on a Life Insurance Policy in Texas
If you decide that you don’t want to continue with life insurance but have already paid premiums into a policy, then you’re entitled to withdraw the value of your account minus surrender charges and interest. The amount left over is your cash surrender value.
Tip: Terminating your life insurance policy will give you access to the cash surrender value of your policy, but you’ll also have to start all over again if you want a new life insurance policy. That means that you’ll have to start a new application and take a new medical examination.
Life Insurance Death Benefit
Death benefit is the money that the life insurance company pays to your beneficiaries when you die in Texas. As the policyholder, you can structure how the death benefit is paid out. It’s most common for beneficiaries to receive the death benefit as a lump sum, though it’s also possible to pay the death benefit in installments.
Tip: Your beneficiaries won’t have to pay any tax on any death benefit payments from a life insurance policy in Texas. However, death benefits from retirement accounts and annuities are taxable. Keep this in mind when planning how much money you should set aside for your loved ones — they may find themselves hit with an unexpected tax bill.
Endorsement to Your Texas Life Insurance Policy
A life insurance endorsement is special additional coverage for your existing policy. A common type of endorsement for life insurance in Texas is a long-term care endorsement. This allows you to use part of your death benefit to pay for long-term care costs later in life and before you die. Endorsements are also known as riders.
Tip: Endorsements are a helpful way to tailor your life insurance to your changing life situation, but be prepared to pay a higher premium.
Grace Period on Your Life Insurance Policy in Texas
Most policies allow for a 31-day grace period. If you don’t pay your life insurance premium in Texas, you’ll have a certain amount of time to settle the balance. This is known as the grace period.
If you don’t pay your premium balance within the grace period, then the life insurance company can cancel your policy. In Texas, this works the same way on your car insurance policy, which also offers a 31-day grace period.
Tip: When shopping for life insurance in Texas, be realistic about what you can afford. The last thing you want is to leave your loved ones in a bad financial situation after you die because you couldn’t keep up with your life insurance payments.
Life Insurance Policy Loan in Texas
If your life insurance policy has a cash value, then you may be able to borrow money by using your policy as collateral in Texas. This is known as a policy loan. Like any other loan, you’ll need to pay back the money with interest over a certain time period. If you don’t pay off the balance, then the insurance company can cancel your policy or subtract the amount due (with interest) from your policy payout.
Tip: Avoid taking out policy loans unless absolutely necessary. If you die before the loan is paid off, then the outstanding balance with interest will be deducted from the death benefit that would go to your beneficiaries.
What is a Life Insurance Agent in Texas?
A Texas life insurance agent is someone who’s authorized to offer and negotiate life insurance options for an insurer in Texas. Independent agents can represent multiple insurers, while direct writers sell policies for just one insurance company.
Tip: When looking for life insurance, make sure that the agent is licensed to sell life insurance in Texas. As in other states, life agents in Texas need to pass specific exams as well as a background check.
What’s the Difference Between a Texas Life Insurance Agent and a Texas Broker?
Life insurance agents represent the insurance company or companies they’re authorized to represent in Texas. Brokers, on the other hand, represent you, the Texas insurance buyer.
Tip: For life insurance in Texas, it’s generally easier and cheaper to work with insurance agents. However, if you have complicated insurance needs, then a broker may be able to help you find the best policies for you.
Finding the Right Affordable Life Insurance in Texas
Every adult should be thinking about life insurance. Not only will a policy cover your own funeral costs, but you’ll be making sure that your loved ones have financial stability if you pass away unexpectedly. At Baja Auto Insurance, we help people find the best coverage for life insurance in Texas at the best price. To learn more, get a free quote for life insurance online, visit one of our offices in person, or give us a call at (800) 401-6870.