Life insurance is a financial tool with two different sides: What it does for you while you are alive and after you die. While you are alive, you can use life insurance as your own bank and to work on the retirement nest egg with tax benefits. When you eventually need elder care, life insurance can step in to help pay for it, and after you die - it pays a predetermined amount as a death benefit to your beneficiaries.
The cost of life insurance coverage can start with less than $10 per month for $250,000 of death benefit while you are young and it will only go up with age. The longer you wait to get a policy and to lock in the permanent rate for the rest of your life, the higher the cost will go.
There are numerous insurance companies offering life insurance to Texas residents. Make sure to ask a licensed insurance agent for help in sorting through the differences between them. A Texas-licensed life insurance agent can review your needs and match you with the best options from competing insurers. Always compare the offerings from multiple companies.
Here are the top life insurance companies offering life insurance policies to Texas residents:
|Top Life Insurance Companies in Texas
(in alphabetical order)
|American General (AIG)|
|American Memorial (Assurant)|
|CMFG Life (TruStage)|
|Life Insurance Company of North America (Cigna)|
|Life Insurance Company of The Southwest (National Life)|
|Midland National (Sammons)|
|Minnesota Life (Securian)|
|New York Life|
|Penn Mutual Life|
|Prudential Insurance Company of America|
|Southern Farm Bureau|
|United of Omaha (Mutual of Omaha)|
|Zurich Insurance Group|
|Always consult with a licensed life insurance agent who can recommend best insurers and policy types - based on your needs.|
Generally, if you have other people who rely on you financially, you should consider purchasing a life insurance policy. Life insurance can provide enough money to replace income and help beneficiaries maintain their current standard of living even after the policyholder passes on.
In Texas, insurance companies, brokers, or agents offer two major types of life insurance, namely permanent life insurance and term life insurance. As the name implies, permanent life insurance, also known as cash value life insurance, runs for a policyholder's entire life, after which it pays out. On the other hand, term life insurance only runs for a specific period, which might be time-based or age-based. If you opt for term life insurance, you only get coverage for that specified period of your life, and there may never be a payout. Insurance companies in Texas also offer credit life and final expense insurance as life insurance types. The premium to pay for life insurance depends on the option a person chooses to buy.
You can add other coverages tailored to your life insurance needs by purchasing policy riders. Although optional, riders in life insurance can cover life events that basic life insurance will not. The common life insurance riders in Texas include spousal rider, accidental death, additional term insurance, children's rider, and guaranteed insurability. Typically, life insurance replaces your income when you die and covers several beneficiaries' financial obligations such as your personal debts and funeral and burial costs. It can also cover the beneficiaries' tuition payments, mortgage payments, and other daily expenses.
Discuss your Texas life insurance needs with a life insurance professional licensed in Texas.
Life insurance in Texas is a fundamental way of preparing a proper financial plan for your family's future. It is a contract between a policyholder and an insurance company. A life insurance policy pays out certain death benefits to previously named beneficiaries after the policyholder's demise. A policy beneficiary is an individual or entity that receives the death benefit from a life insurance policy when the insured dies. Choosing one or more beneficiaries is crucial when buying life insurance in Texas. You can either select your adult children, parents, siblings, spouse, a Trust, charitable organization, or a business partner as beneficiaries of your life insurance policy. It is not advisable to designate a minor child as a life insurance policy beneficiary.
You consent to pay premiums once you purchase a life insurance policy, which keeps the contract active throughout its duration (depending on the contract type). Texans can choose to enjoy both the living benefits and death benefits of some insurance policies. Generally, it would help if you considered certain things when buying life insurance. These include the amount you will pay for premiums, the type of coverage you need, and whether to opt for a cash value life policy or a term life policy. You must also consider the differences between life insurance quotes for each available policy option and which riders (if any) you would like to include.
When a policyholder dies, beneficiaries must file a claim with the life insurance company before paying out death benefits. Typically, the life insurance company will require paperwork and supporting proof to process a claim before paying out. Hence, beneficiaries will be asked to provide a copy of the life insurance policy, a certified copy of the policyholder's death certificate, complete a death claim form, and other documents that the insurance company may require. While there is usually no deadline for filing a life insurance claim, it is always better to do it sooner.
In Texas, there are four main types of life insurance:
They fall into the 2 main categories:
Cash Value Life Insurance
Term Life Insurance
This type of life insurance runs throughout the policyholder's life until their demise, and the premiums are usually expensive. If you opt for permanent life insurance, you will undoubtedly build savings over a long period as a portion of the premiums you pay goes into an account known as the cash value. Usually, it takes years of life insurance to build a cash value. The cash value increases at a variable or fixed interest rate, and you can withdraw or borrow from it.
Insurance companies in Texas offer three common types of cash value life insurance: whole-life insurance, final expense insurance, and universal life insurance.
Whole-life insurance provides cover for your entire life span unless you stop paying premiums or cash the policy in. It lasts your whole life if you keep the policy. While dividends are not guaranteed, some whole-life policies may pay them yearly. Whole-life insurance pays death benefits and a possible cash value against which you can borrow or withdraw.
Final Expense (FE) insurance is technically a whole life policy that can cover all expenses relating to the insured's funeral after their demise. You can relieve your family of final expenses such as medical, funeral, and burial expenses when you die by getting this product. A final expense insurance policy benefits old and retired persons who no longer have life insurance through their employers or do not have individual insurance policies. Although the payout of final expense insurance primarily covers the policyholder's funeral, beneficiaries can use it for other purposes.
Universal life insurance protects you until the maturity date, typically at up to age 125, provided your cash value has at least $1. It offers more flexibility than whole life insurance. For instance, it allows you to change your death benefits and premiums amounts. However, any change you make could impact the coverage period, cash value, or death benefit. Premiums paid for universal life insurance depend on your age when you buy the policy. As with whole life insurance, universal life insurance also pays death benefits and a probable cash value from which you can withdraw and borrow.
As the name implies, term life insurance is not designed to cover you for your entire life. It only protects you for a specific period, which can be between one year and 100 years, depending on how long you require an insurance coverage. Term life insurance is typically for people who are willing to pay large premium amounts as they grow older. However, most companies will not offer you term life insurance beyond 70 or 80 years of age. Generally, a term life insurance policy in Texas ends at its specified time unless the policyholder chooses to extend it. Buying a term life insurance policy while raising a family or having children who are still in college is a good idea. The premium paid for term life insurance is usually based on a person's age when buying the policy. Hence, while the premiums you pay remain the same for an entire term, you will pay higher if you renew such a policy because you would have grown older. You can avoid paying higher premiums on term life insurance by purchasing a policy with a longer-term. Term life insurance pays out death benefits only.
Texas also has other types of life insurance that provide only specific coverages. These are prepaid funeral insurance and credit life. Prepaid funeral insurance pays the policyholder's funeral costs at current prices, and it is expensive compared to all other life insurance types. What you pay as premiums may eventually outweigh the amount the policy will pay out when you pass on. Credit life settles what is left of a loan repayment when the policyholder dies before paying off a loan. However, you may not need a credit life if you already have a regular life insurance policy and have assigned part of the death benefits to your lender, should you die before paying off a loan.
Final Expense life insurance
Group Life life insurance
Guaranteed Issue life insurance
Typically, the underwriting process of insurance companies includes passing a medical exam and answering questions relating to your health and habits. If a company considers you a high risk because of your health condition, it is not obliged to sell you a life insurance policy. However, there are certain instances where medical exams are exempt from insurance companies' underwriting process. For example, final expense (FE) insurance does not require a medical exam. Most insurance companies issue FE insurance based on answers to health questions on applications. Similarly, group life insurance in Texas does not require any medical exam unless you wish to have more coverage than what the basic group policy provides. Group life insurance is usually offered by employers and other groups regardless of health condition. Lastly, guaranteed issue life insurance is available from some insurers. The qualifications are very minimal and you are almost guaranteed.
The convertibility feature of term life insurance can allow you to exchange your term life policy for permanent life insurance without taking a medical exam. This feature of a term policy is particularly beneficial if your health deteriorates after buying a term life insurance policy. Also, regardless of your health status, you do not need to take a medical exam if you choose to extend your term life insurance for additional terms.
Although the time to purchase life insurance differs from person to person, it is generally advisable to get one when you are young and have people who rely on your income. Even though you may not need it, it is best to buy life insurance in your 20s when you are healthier and pose less risk to an insurance company. You will also get it at the most affordable rates and qualify for lower premiums during this period of your life. However, life insurance is not a one-time purchase. As your lifestyle changes, such as when you have more kids or take on more debts, ensure to review your coverage needs.
It is best to purchase a permanent insurance policy at an early age because the cash value grows tax-deferred. When you purchase it early, your premium contributions tend to accumulate substantial value over a long time. The right time to buy term life insurance is when you are younger, especially if you anticipate that other people will rely on your income.
Life insurance in Texas covers several purposes based on needs. The paramount ones include:
Paying Policyholder's Final Expenses After Demise - Instead of burdening your family with impromptu expenses, they can use your life insurance death benefit to pay for final expenses after your demise. Such expenses may include funeral costs and medical bills not covered by your health insurance. They may also include some delinquent obligations and estate settlement costs.
Providing For a Policyholder's Family Needs After They Pass Away - Life insurance can mitigate the stress of an already challenging time by supporting your family's financial stability when you die. Typically, insurance claims can replace your income once you pass away, enabling your family to cater to essential expenses. Such expenses may include paying off some family debt, like credit card bills, paying your wards college tuition, and mortgage.
Minimizing Policyholder's Taxes in Retirement - In addition to basic life insurance, you can think of life insurance as a pension/retirement savings that could give you a constant stream of tax-free alternative retirement investment. This is commonly referred to as a living benefit where you can also borrow funds against your savings. Buying life insurance can prevent you from getting stuck with a tax bill in retirement, a period when you can barely afford to pay taxes.
Discuss the options of what you can do with life insurance with knowledgeable Texas-licensed insurance professionals.
A premium in life insurance is the amount of money you pay an insurance provider/company to give you life insurance coverage. Simply put, it is the cost of your life insurance coverage. Depending on the life insurance type and the insurance provider, you can pay your policy premiums monthly, quarterly, semi-annual, or annually.
In determining life insurance premiums in Texas, an insurance company generally evaluates a person's risk level. Typically, you will pay a higher premium if, during their underwriting process, your insurance company determines that you pose a higher risk. Insurance providers consider a person's health condition, age, sex, coverage type, and lifestyle when deciding life insurance premium. Typically, you will get lower life insurance premiums if you are young and healthy.
A death benefit in life insurance is the sum of money that insured's beneficiaries receive after the insured's demise. However, such a life insurance policy must still be in force, without which an insurance provider cannot pay out the benefit to beneficiaries. In Texas, life insurance death benefits are usually tax-free if a policy is active when the insured person passes away.
A death benefit is payable in Texas after the demise of the life insurance policyholder. However, insurance companies will not pay it out automatically. Beneficiaries of a life insurance policy must notify the insurance provider of the policyholder's death by filing a claim. Afterward, beneficiaries must provide the insurance company with a completed death claim form, insurance policy number, deceased policyholder's name, and social security number. They must also tender the insured's death certificate as proof of death. Life insurance beneficiaries will get reduced death benefits where a policyholder already accessed parts of their living benefits while alive. In most cases, the insured's insurance agent can assist through the claims process.
There are instances where insurance providers in Texas can payout parts of a death benefit before the policyholder dies. A living benefit in life insurance is a kind of rider that allows a life insurance policyholder to access a part of their policy's death benefit while still alive. It would help if you considered having this feature with your life insurance policy if you are planning to purchase one.
Some life insurance policies come with an accelerated death benefit rider, although optional. If you purchased this rider with your life insurance policy, then you can access part of the policy's death benefit amount while alive, especially to care for a terminal illness. Most insurance companies permit policyholders to access 25% of their policy's death benefit as a living benefit. However, your insurance provider may need you to provide proof of life expectancy from a medical provider to accelerate the disbursement of the death benefit. If you have a shorter life expectancy, especially under two years, your insurance company will accelerate the payout. When this happens, it impacts the death benefit payout to your policy's beneficiaries when you die. Typically, your insurance company will reduce the death benefit payout to beneficiaries by the amount of living benefit used while alive.
MEC stands for Modified Endowment Contract.
During the 1980s Congress passed a rule that wealthy people in the United States can not put large amounts of money to grow tax-deferred and then get that money back out tax-free. Prior to this, many wealthy people had been taking advantage of this loophole.
After the Congress passed the law, it meant that insurance companies could still take in large amounts of money, pay the premiums, and produce the tax-deferred growth, however, if the owner of the policy wants to loan or withdraw from a MEC policy they have to pay income tax on the withdrawal.
Congress and the Internal Revenue Service (IRS) worked together and came up with a 7-Pay test of maximum allowable payments into the cash value life insurance policy. This test provided a guideline to insurance companies on what is allowed by law to withdraw or borrow from the policy without paying any income tax.
The way it works is that one can have a non-MEC policy and for that, they have to pay with the 7-Pay guidelines each year or buy a larger death benefit. By buying the larger amount of death benefit the insured or policy owner has to make sure that in later years the cash value is enough to keep the policy in force and does not lapse or end before death. You do not want to deplete the cash value due to the cost of insurance.
Some people do choose to buy a MEC policy as they want to leave the benefits to a legacy for the future generation or charity. This also helps them place the cash out of their estate and makes it creditor-proof, estate and income tax-free.
Insurance companies along with a knowledgeable licensed agent in the State of Texas can help you with a decision: To MEC or Not to MEC.
A rider in life insurance is a feature or coverage that you can add to your life insurance policy to cover life events that your primary policy does not cover. It is always optional and often comes at an additional cost to a policyholder. As the name implies, a life insurance rider rides along and becomes a part of your life insurance policy contract.
Riders are essential in life insurance because they allow you to customize your policy contract and help you maximize your basic policy coverage and benefits. With a rider in life insurance, you will enjoy several types of protection that your basic policy will not offer. So, when you compare basic life insurance plans across providers in Texas, compare the riders they have in offering to enable you to enhance their original policy plans.
The top-most eight crucial life insurance riders in Texas are:
Family Income Rider - This rider provides a life insurance policy's beneficiaries with a regular payment after their death. The amount beneficiaries receive usually equals the policyholder's monthly income. When choosing this rider, you must determine the number of years you want the insurance company to pay this benefit to beneficiaries.
Critical Care and Chronic Illness Rider - Commonly known as accelerated death benefit rider, a critical care illness rider allows you to borrow up to 25% of your death benefit while still alive and critically ill. However, your insurance provider will deduct whatever amount is used from what your policy's beneficiaries will receive when you die.
Accidental Death Rider - This is sometimes called a double rider indemnity rider. Typically, an insurance company pays beneficiaries the face value of a death benefit. However, if you die due to an accident and have an accidental death rider, the insurance provider will pay policy beneficiaries an additional sum on your death benefit. Insurance companies usually pay beneficiaries double of the regular death benefit.
Child Term Rider - Once your child reaches maturity, this rider allows you to convert their term life insurance policy to a permanent life insurance policy without having to take a medical exam. It also provides a death benefit should your child die before a specified age.
Return of Premium Rider - With a return of premium rider, your insurance provider reimburses all or some of the life insurance premiums you have paid over the years if the policy expires while still alive. However, if you die before the end of the policy term, your policy beneficiaries will receive your paid premiums in full.
Waiver of Premium Rider - With this rider, your insurance provider will waive all future premiums if you lose your income source as a result of illness or injury or become permanently disabled before a specified age. This waiver will be in place until you are able and ready to work again.
Terminal Illness Rider - When you have a terminal illness and need emergency funds, this rider comes in helpful. You can use it to pay off medical costs, mortgage, and settle other pertinent expenses.
Guaranteed Issue/Guaranteed Insurability (GI) Rider - If you purchase this rider with your life insurance policy, you have a guarantee that your insurance provider will continue coverage after your current policy expires without taking a medical exam. Choose this rider if you anticipate a significant change in life, such as marriage, childbirth, or health changes.
No. A deductible is the amount of money you pay towards an insured loss, and it is removed from your claim payment when there is a loss/disaster. It is like a cost you must bear before your insurance coverage kicks in and disburses your claims. A deductible provides an avenue for you to share risks with your insurance provider. While it may apply to a homeowners policy and auto insurance, it does not apply to life insurance. This is because life insurance premiums are generally considered a personal expense.
Generally, life insurance companies buy risks in exchange for premiums. They evaluate a prospective policyholder's risk and quote a premium using mathematical calculation and statistics. Typically, if a life insurance provider considers you a high risk, probably due to old age or health conditions, your policy premium will be higher.
The business model operated by life insurance companies differs from other types of businesses. Insurance companies' business model is an inverted production cycle. This implies that policyholders pay premiums upfront while insurance providers only make contractual payments when an insured incident occurs, usually death in the case of life insurance. The inverted production cycle business model allows insurance companies to have a steady flow of cash that they put in safe investments since they do not want to take on additional risks.
A life insurance company can pay out claims quickly to policy beneficiaries if they provide all the required documents. They can payout claims within 30 days of receiving all the necessary documentation in an ideal situation.
Insurance companies come with different ownership structures, but the most prevalent are mutual insurance companies and stock insurance companies. If you buy a policy from a mutual company, you, as a policyholder, co-own the company and enjoy its dividend income. On the other hand, you are not entitled to any dividend if you purchase a policy from a stock insurance company. Shareholders or stockholders are co-owners of stock insurance companies.
Mutual insurance companies are a better choice than stock insurance companies, especially in terms of cash value growth and dividends payout. Mutual companies sometimes retain those dividends in exchange for discounts on future premiums. Conversely, stock companies distribute surplus profits to stockholders as dividends or issue shares of stocks to generate more revenue. Mutual companies allow you to convert your term life policy to a whole life policy if you can save money in your cash value. This conversion will allow you to enjoy the benefits of a higher dividends payout.
Besides the profit that life insurance companies make on premium payments, they make money from their safe investments using those premiums. Essentially, life insurance companies make more substantial income when they invest premium revenues than they do on premium collections. For instance, a report by the Insurance Information Institute (III) revealed that in 2020, investment income for the life/annuity insurance industry exceeded revenue made from life insurance premiums. Investment income totaled $186 billion, while revenue generated on premium collections was $143.1 billion. On top of that, life insurance companies are also able to buy reinsurance - effectively insuring their losses.
Life insurance companies will still make money even if everyone dies. The business model they operate is such that policyholders pay high premiums while life insurance providers, in turn, make low payouts. Simply put, life insurance companies make huge revenues from policyholders than what they have to disburse in death claims.
Buying life insurance can save your family and dependents from financial disasters after you die. Generally, life insurance in Texas provides death benefits to beneficiaries of a policy after the policyholder's demise. With your policy's death benefit after you pass away, your loved ones may not experience any financial burden associated with adjusting to your absence, especially if you are your family's breadwinner. The death benefit from your life insurance policy can cover your family's monthly bills, children's college tuition, estate planning, and funeral costs when you are gone.
Everyone should have at least minimal life insurance coverage. You should purchase a life insurance policy if you have people who depend on you and your income. There is an array of life insurance policies in Texas from which you can choose.
If you only need cover for a certain number of years, you can choose term life insurance . On the other hand, you can buy a permanent (Cash Value) policy for coverage that will last your lifetime.
If you are older and retired and no longer have life insurance through your employer or do not have an individual policy, you can buy final expense (FE) insurance.
While beneficiaries of a final expense insurance policy can use the payout for any purpose, it primarily covers your funeral costs when you are gone.
You can choose indexed universal life (IUL) insurance if you want the flexibility of adjusting life insurance premiums. It also allows you to allocate cash value amounts to either an equity index account or a fixed account while offering the possibility of accumulating cash and still providing a death benefit.
Generally, everyone should buy life insurance. Essentially, you should do so if:
You are a business owner
You are an adult with private student loans
You are married and provide most of the income in your family
You are a parent with young children and other dependants with functional needs
You are an adult without substantial savings to draw on (use for death benefit)
You are an adult with substantial savings to draw on (use as a living benefit or for investment)
You can buy life insurance on anyone other than yourself if you have a relationship with them and have a financial stake in their life (also known as the "insurable interest"). If you are buying life insurance on an individual, you must prove to the life insurance provider that you would face financial challenges and hardship should the person die. However, such persons must give their consent and be involved in the entire application process. In Texas, you can buy life insurance on your spouse, children, parents, siblings, former spouse, business partner, and employees.
No life insurance company will allow you to buy a policy on another adult without their knowledge. Hence, you cannot purchase life insurance on someone who has not given their consent for you to do so.
Life insurance policy owner is the person who is authorized to make changes to the policy. The policy owner has full control of the amount that gets paid out as the death benefit and who this money ultimately goes to - the named beneficiary.
Among other things, the owner of the life insurance policy may:
Have access to cash value accumulated in the policy
Increase or Decrease the death benefit.
Unlike some other states with contestability laws, Texas pays the death benefit to the named beneficiary. The owner of the policy has an obligation to distribute the funds as per the policy named beneficiaries. In the event of minor children a trustee is nominated and the funds are held in a trust account, until the children attain legal age (18 in Texas).
The insured should not be the owner of the policy. If the insured is the owner of the policy at the time of death, the death benefit is paid out to the named beneficiary.
Most common ownership of life insurance in Texas are through the insured's:
Speak with a state-licensed and knowledgeable life insurance professional and an estate planning attorney about the best way to structure the ownership of your policy.
Choosing a beneficiary for life insurance is one of the critical steps in buying a policy. When you plan to purchase life insurance, determine what drives your choice of buying it and know your options. Knowing your options is essential because you can designate other beneficiaries outside your immediate family. Also, ensure to keep the beneficiaries up-to-date with various life events. For instance, if you choose your father as your policy's beneficiary while single, you should change it when you get married. When you designate a beneficiary, make it explicit with specific names. Additionally, avoid designating a minor as your life insurance policy's beneficiary. State laws may limit the amount a minor child can receive from the death benefit, and the court may have to designate a guardian to manage such funds.
A beneficiary in life insurance receives the funds from a policyholder's death benefit when they die. A life insurance beneficiary can be a person or entity. When choosing beneficiaries of your policy, it is essential to have both primary and contingent beneficiaries. A primary beneficiary is the direct beneficiary of a life insurance policy and gets the death benefits after you die, provided they are alive and can be found. On the other hand, a contingent beneficiary enjoys the death benefits where a primary beneficiary has passed away or cannot be found after your death.
If you wish to buy a life insurance policy, you will be solely responsible for deciding who the beneficiaries are. However, insurance experts recommend choosing persons or entities with whom you have a relationship.
Changing your life insurance policy beneficiaries is easy. However, if you own a policy with an irrevocable beneficiary , the current beneficiary's consent is required to make any change. You do not need the current beneficiary's permission to change the beneficiary of an insurance policy with a revocable beneficiary. To change a beneficiary, contact your insurance provider to provide you with a change of beneficiary form and return it to them after filling it out. When completing the form, ensure to provide the social security numbers of the new beneficiaries and spell out their complete names accurately. Also, make sure to state how you want the death benefits distributed if you name multiple beneficiaries.
You want to buy a life insurance policy because you intend to provide for your family when you die. Hence, it is essential to name adults you trust as beneficiaries. If you have minor children, make sure to name trustworthy trustees and custodians who you can trust with your children's financial well-being. Also, you can designate a charitable organization as a beneficiary of your life insurance if you have a cause dear to your heart.
If you name the wrong beneficiaries on your life insurance policy, the people you intend to protect when you die might become vulnerable and suffer financial hardships. Do not name disabled persons, minors, and in some instances, your estate as your life insurance policy beneficiaries. Naming your minor children as beneficiaries may complicate paying out the death benefit since they are not of legal age. Typically, a court will assign a guardian to administer the funds. This process is usually expensive and cumbersome. If you name your estate as beneficiary, your family will not get the full death benefit. The total amount of the death benefit may go through a process known as probate, where a judge determines your outstanding debts. Your family or dependants will only receive the rest of your estate when your creditors have been fully settled.
Generally, life insurance is not an investment per se because it is not a financial risk and pays out a guaranteed death benefit when the policyholder dies. If you see it as putting your money away to help your family when the unexpected happens, then you can think of it technically as an investment. Some kinds of life insurance can work as an investment in Texas because of their characteristics in building up a cash value. These include universal life insurance and whole life insurance. If you have any of these life insurance policies in Texas, the built-up cash value can serve as your tax-free retirement income.
No life insurance provider in Texas will sell any policy to you as an investment. You can buy annuities if you want a steady and guaranteed income over a long period after your retirement. An annuity contract in a life insurance company allows you to pay a series of large sums of money to a life insurance provider upfront. The insurance company will, in turn, pay you monthly income as long as you continue to live.
While term life is a pure insurance product, a permanent policy, such as whole life insurance, can be used as an investment vehicle. A cash value life insurance policy in Texas lets you build cash value over time, which can be accessed by the insured while they are still alive - as a living benefit.
With cash value life insurance, you manage the risk of unexpected death and at the same time build cash value over time. The cash value you accumulate on this insurance policy is tax-deferred and a low-interest loan source against which you can borrow (borrowing from yourself). You can withdraw the money you pay into a cash value life insurance policy free of tax. However, if you withdraw more than your premiums paid, plus the growth amount, you will be taxed at your ordinary-income rate.
Like a savings account, the cash value (CV) and death benefit on your Cash Value-type insurance policy grow over time. However, there are a few differences between your savings account and your investment in life insurance. These include:
Life insurance gives you high returns, while returns on a savings account are generally low
Life insurance has fixed premium rates, but savings accounts have flexible monthly savings amount
Life insurance pays out a death benefit, but savings accounts do not
A savings account is generally liquid as you can access your money anytime, but you have to wait several years to access funds in your insurance policy
Life insurance grows tax-deferred. If properly structured, it is possible to extract the cash using the tax-free loans (borrowing money from the cash value tax-free, where the repayment of the loan happens using the death benefit at the time insured's death).
Life insurance premium financing is another investment and personal finance management option used by high net worth individuals in Texas. It is beneficial where they do not want to liquidate any of their assets to pay expensive life insurance policy premiums. They do this by securing loans from a third-party lender to pay their premiums. The loan interest is paid annually, and the principal repayment can be at any time, even at death. It works perfectly if the interest on such loans is less than the anticipated appreciation earnings on their assets. If a high net worth individual dies before paying off such a loan, the proceeds from the insurance can be used to pay off the outstanding balance.
Credit life insurance is a special type of insurance that pays off your loan if you die before completing repayments. In Texas, a credit life insurance policy can cover education loans, mortgages, auto loans, credit card loans, and other loan types. Your insurance provider links the face value of the policy to the loan amount, and the policy coverage decreases as you pay your debt in installments. Although you pay premiums on your credit life insurance policy, your lenders are usually the beneficiaries, and they get the payout when you die, not your family.
An insurance company will pay you the maturity value of your life insurance policy when it matures, and the coverage will end. All permanent life insurance policies have a policy maturity date. Ideally, this is expected to be after the policyholder dies. It may also be when the person attains the age of 125 years, depending on which Commissioners Standard Ordinary (CSO) Mortality table was used. If you are alive at 125 years old, your life insurance provider will directly pay you your policy's death benefit. Life insurance companies use CSO tables in underwriting policies as a standard for measuring average life expectancy across different demographics.
Typically, life insurance providers investigate the cause of insured's deaths before paying out the death benefit. In Texas, if the cause of a policyholder's death is suicide during the first two years of the policy, insurance providers are not obliged to pay the death benefit. However, they must return the premiums paid by the policyholder within that period to the beneficiary if they choose not to pay the death benefit. Where a life insurance policy has been in effect for more than two years, the insurance provider must pay the death benefit regardless of the cause of the death, including suicide.
You can use life insurance to get a possible second chance at life when you die, which cryogenics promises. To achieve this, purchase a life insurance policy of a sufficient amount to cover the costs of cryopreservation and miscellaneous expenses and designate any cryonics organization or cryonics trust as the beneficiary. When you die, and cryopreservation occurs, the cryonics trustee or organization will have access to the funds left in your policy to pay for your cryonic suspension and regular maintenance. Hence, your life insurance policy must have enough death benefit to cover these costs and, more importantly, ensure that the policy does not lapse.
Life insurance is love insurance!
Having a permanent life insurance policy can be a good investment, but it should not be a part of an overall financial planning strategy. It can help you build wealth for investment when you are alive using the cash value accumulated over a long period.
Make sure to discuss your life insurance needs only with qualified state-licensed life insurance professionals. A knowledgeable insurance agent with a broad selection of products from various insurers analyzes your specific needs and suggests multiple options to meet them.