What Is The Purpose of Insurance in Texas?
Summary
The purpose of insurance in Texas is to protect businesses and individuals from personal risks, liability risks, death, illness, or property risks that may otherwise lead to larger losses. Insurance contracts function to allow you (the insured) to transfer your risks to the insurance provider (insurer), by paying a fee (premium) for this protection.
Insurance in Texas follows the 6 basic principles of insurance:
- Utmost Good Faith is when you must provide honest and clear information, identifying important facts that relate to the applicable terms and conditions of the insurance policy. For example: If you were shopping for a health insurance policy and you forget to mention to the insurer that you smoke and later get lung cancer, at the point of making a claim, the insurance provider may not be obligated to pay for cancer related treatment due to concealed material facts.
- Proximate Cause is the determination of the primary cause of damage. For example, if a restaurant does not wash their dishes well and someone gets sick, the unsanitary conditions would be the proximate cause for the liability insurance claim.
- Insurable Interest is when buying an insurance plan, you must have a legal financial interest in the subject matter of the policy. For instance, you have an insurable interest if you are insuring your vehicle, home, individual assets, your health or life. However, if you try to insure your neighbor’s home, you can not do it, without being able to exhibit insurable interest.
- Indemnity is when the insurance company provides monetary compensation that is meant to return you to the same monetary position you were in before the occurred loss. For example, if a house is destroyed in a fire, insurance is meant to provide coverage to clean up, rebuild the house, and replace the lost contents inside of it. This returns the insured to their monetary position before the loss (minus the deductible).
- Subrogation is what gives the insurance provider the option to demand pay from a third party answerable for causing loss to the insured. For example, in your auto insurance, if you get hit by another car, your insurer has a right of claim from a third party insurer that is covering the car that hit you.
- Contribution is an indemnity insurance principle that applies if at least two insurance providers insure the loss of the same item. In the event of a loss or damage, each insurer provides coverage to the extent of each separate coverage limits. The duplicating policies split the claim among them.
Why Do We Have Insurance in Texas?
We have insurance in Texas as a risk management strategy that covers you —the insured— in the event of losses outlined in your policy. Insurance can pay out the benefits both to you as the policy holder or to someone else, up to the limit of the policy. When the payout of the benefit is not made to the policyholder, it may be issued to a designated beneficiary. In a liability insurance case the insurance pays out to the wronged party on the policyholder’s behalf.
All insurance entities in the state are strictly regulated under the Texas Insurance Laws.
Why Do You Need Insurance in Texas?
You need insurance to stay financially secure in case of any unfortunate events or life uncertainties that can easily drain your savings. Such events include accidents, medical emergencies, damage to property, business lawsuits, death, and many more.
In order to decide what kind of insurance you need to buy, you must first figure out your specific insurance needs. The next step is the evaluation of options that fit those needs.
When you start analyzing your insurance needs, you may consider:
- Present state of your health
- Standard of living
- Family size and number of children
- Assets such as your businesses, home, cars, etc.
For example, irrespective of age, every Texan needs health insurance to decrease out-of-pocket costs during hospitalizations, routine clinical visits, health emergencies, maternity costs, surgeries, and critical illnesses (to name a few).
While Texas residents are not mandated at both federal and state levels to buy health insurance, every car on the road must be insured. As indicated by Texas Transportation Code § 601.053, drivers must show proof of financial responsibility (insurance card) to drive freely in the state. Infact, the Texas Department of Motor Vehicles (DMV) features an online database known as TexasSure for speedy confirmation and identification of drivers without the required auto liability insurance.
Another example of when insurance is required by law is applicable to Texas general contractors. Texas contractors are required to provide workers compensation insurance coverage to their employees while working for public employers. This way, if the contractor falls off the roof and gets injured on your property, their lost wages and medical bills get covered by the general contractor’s insurance and not property owners’.
It is important to know that there are numerous insurance options in Texas and the most ideal decision relies on the individual’s specific as well as most probable needs.
Speak to your trusted Texas-licensed insurance professional to discuss how your needs can be taken care of with the best coverage for the most affordable cost.
Is Insurance Really Necessary in Texas?
Yes, good and adequate insurance coverage is necessary to protect your family, property, business, and yourself from insured losses. The benefits of insurance to an individual depends on the individual's insurable needs. For instance, the state of Texas is threatened every year by hurricanes and tornadoes. Because of these adverse weather conditions, the Texas Department of Insurance and the Texas Department of Land Office advise residents to purchase and maintain homeowner and renter insurance policies as well as flood insurance coverages.
Texas has five main types of insurance groups that individuals or businesses can get coverage for:
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Most Texans will need medical care at some point. Health insurance is necessary to cover these costs in addition to other benefits. Typically, modern insurance providers in Texas offer a wide range of health insurance policies. You can choose to purchase an individual or a family plan. Other coverages include group health insurance plans, dental insurance, Medicare, Medicaid, and Children Health Insurance Program (CHIP). Medicare and Medicaid are federally-sponsored coverages offering low or no-cost health insurance to eligible individuals. Before applying for these plans, it is recommended to do your research and also speak with a state-licensed insurance agent l to know what is covered and what is not.
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Life insurance is especially beneficial to people with families and dependents. Texas life insurance coverages help the insured and/or their beneficiaries to pay for the funeral expenses, provide tax free retirement income, pay “death” tax for federal estate settlements, and much more. The most common life insurance coverages in Texas include:
Term life insurance
Final Expense (burial) insurance
Permanent life insurance
Group life insurance: offered by some employees as a special benefit to their employees. The Federal Employees' Group Life Insurance (FEGLI) is commonly offered by eligible employees in Texas.
Life insurance death benefits and cash value loans are not considered taxable income by the Internal Revenue Services.
Property Insurance
In Texas, property insurance provides coverage for material losses to property as a result of damage that may be caused by windstorm, lightning, fire, explosion, vandalism, explosions, malicious mischief, and riots. Most common types of property insurance are:
Homeowners, which insures damage to both structure of the home and personal properties inside of it, and
Auto - which covers your car, you, your passengers, and any damage you may do to others.
Travel, railway, marine and aviation insurance provides coverage to goods and freight. Commercial insurance is quite similar to homeowners insurance because it provides coverage against natural disasters, theft, public liability, as well as industry-related risks or equipment failures. Other types of property insurance include: condo insurance, mobile home insurance, flood insurance, landlord insurance, and business property insurance for apartment complexes.
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All businesses in Texas run the risk of unexpected losses caused by accidents, natural disasters, lawsuits, and many more. Having the correct business insurance policy is absolutely necessary to cover your possible losses and ensure that the business does not waste its own cash reserves on paying for repairs and you don't run out of business.
Commercial insurance providers in Texas offer coverage for:
Professional liability,
Legal liability,
Workers compensation, and many more.
The kind of business being run determines the level of liability coverage you need. Interested businesses can use the professional liability admitted carriers list to find licensed insurance companies in Texas, or consult with a state-licensed insurance agent for guidance. Note that in Texas, private companies are not under any obligation to have workers’ compensation insurance. However, the Texas Department of Insurance Division of Workers’ Compensation (DWC) requires an employer to provide their employees with workers' compensation when working with any government entity.
Liability Insurance
In Texas, liability insurance can be purchased under different insurance policies, like homeowners and renters insurance, condo, all types of business insurances, and automobile insurance. Most Texans purchase liability coverage to protect themselves from incurring liability when other people sustain bodily injury or property damages. Texas is an “at-fault” car accident state, which means drivers will be financially responsible for any accident they cause. Texas drivers manage this responsibility by buying an automobile liability insurance policy that helps pay or repair damages they are financially liable for. Texas requires its drivers to have the minimum amount of liability coverage of at least $30,000 coverage for injuries per person, a total of $60,000 per accident, and $25,000 for property damage, also called the 30/60/25 coverage.
Due to a variety of available options and possible cost-savings configurations, insurance consumers are advised to seek the assistance of a trusted insurance professional licensed to sell the appropriate type of insurance in Texas.
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