Whole Life Insurance in Texas

Whole life insurance in Texas is a type of permanent life insurance that covers the policyholder for the duration of their lives in exchange for a level or flexible premiums. These premiums are to be paid timely according to an agreed-upon schedule which may be monthly, quarterly, bi-annually, or annually for the duration of their lifetime. Whole life insurance premium is determined using factors such as:

• Age

• Health status

• Build

• Tobacco use

• Gender

• Medical history

• Lifestyle

Whole life insurance provides coverage permanently for the life of the insured and lasts for the duration of the lifetime of the insured as long as premiums are paid and the cash value has enough balance to pay the premium from the dividends. In cases where the premiums are not paid, and one chooses not to use the cash value account, premiums would be paid out of pocket.

Whole life insurance is broken down into the following types: Limited whole life insurance, variable whole life insurance, adjustable whole life insurance, universal whole life insurance, indexed whole life, participating whole life insurance, non-participating whole life, economatic whole life, etc.

What is Considered Whole Life Insurance?

Whole life insurance is a type of permanent life or cash value life insurance that is valid throughout the policyholder’s lifetime however long the policyholder lives. This is so long as premiums are paid regularly and the holder doesn’t cash in the policy before death. Whole life insurance has a savings component called cash value. The cash value component consists of a portion of the regular premium payments paid into a cash-value account which increases upon companies dividend earnings. The importance of the cash value component is that the policyholder can borrow against it to offset financial emergencies without tampering with the validity of the policy. Whole life insurance spans the lifetime of the policyholder and doesn’t guarantee the payment of dividends in most cases. However, you are guaranteed death benefits and can loan a portion of the cash value.

What is the Purpose of Whole Life Insurance in Texas?

Whole life insurance serves to give the policyholder a worry-free and stress-free life while securing the financial needs of the loved ones in case of the sudden loss of a breadwinner. Whole life insurance not only provides death benefits, but it also provides a cushion against emergencies occasioned by life such as, debt. Whole life insurance provides the insured with a cash value component, against which the policyholder can take out a loan to cushion the effects of these emergencies.

What are the Types of Whole Life Insurance in Texas?

The following are the types of whole life insurance in Texas.

• Non-Participating whole life insurance: Non- participating whole life insurance is usually issued by publicly traded companies. Non-participating whole life insurance doesn’t pay dividends; rather it has a cash value component that accrues interest but these interests do not accrue to policyholders. Non-participating whole life insurance has fixed costs and economical premium payments. Policyholders who want to benefit from the interest on cash value have to purchase the publicly traded stock of the life insurance company.

• Participating whole life insurance: This type of whole life insurance pays dividends into the cash value of the policy when the company makes a profit. Dividends are not guaranteed as they come from the company’s excess investment earnings but can increase returns the policyholders receive. Dividends are not taxable and can be paid to policyholders directly. Dividends can be paid to policyholders in cash, can be used to reduce premium payments, purchase additional paid-up cash value insurance, or added to cash value to earn interest.

• Single premium whole life insurance: As the name implies, single premium whole life insurance is funded by a single premium payment to purchase a stipulated amount of paid coverage. This paid coverage is for the life of the purchaser with no additional premium payment required. The death benefit under this whole life insurance plan is tax-free but if a loan is taken from the single premium policy, tax would be paid as income. It is therefore important to consult a knowledgeable state-licensed life insurance agent and an estate planning attorney to go over the intricacies and gray areas of the single premium whole insurance.

NOTE: Single premium whole life insurance is considered a Modified Endowment Contract (MEC). (read more about MECs here)

• Economatic whole life insurance: This whole life policy combines the basic amount of participating whole life insurance with additional supplemental coverage provided through the use of dividends. Dividends are used to purchase increments of permanent coverage to replace the term coverage as it decreases. Where dividends are not enough to replace the term coverage, it causes a decline in the net value of the death benefit as the term coverage increases.

• Limited payment whole life insurance: Policyholders under limited whole life insurance only pay premiums for a limited and specified period of time. This policy remains valid if the premiums paid and dividends are sufficient to keep up the cost of the insurance in the future.

• Modified whole life insurance: Policyholders under the modified whole life insurance pay lower premiums from five to twenty years after which the premium cost increases. The premium paid in the earlier years is lower than the regular whole life premium sum. Upon increase of the premium after the stipulated number of years, the premium is higher. Death benefit, in this case, is level throughout the period of coverage.

• Variable whole life insurance: Variable whole life insurance invests the cash value in a selection of mutual fund sub-accounts or in the stock market that gain or lose value based on the performance of those investments. Variable whole life allows the policyholder to participate in the long-term gains and loss of the investments in the sub-account rather than pay dividends or guaranteed interest rates periodically. A disadvantage to variable whole life insurance is that policyholders may lose money due to the poor performance of particular investments.

• Indeterminate premium whole life insurance: Indeterminate premium whole life insurance provides for flexible premiums that can be adjusted. The company charges a current premium amount determined by the current investment earnings estimate, mortality and expense costs. If the estimate changes in the future, the company will adjust the premium accordingly.

• Guaranteed issue whole life insurance: This offers coverage for people above the age of 50 who want their final expenses covered by their death benefits. It is also for individuals with very complex health concerns who would like to sort out funeral expenses and other minor expenses before passing. This type of whole life insurance has no cash value and the death benefit sum doesn’t exceed $25,000.

Regardless of what whole life insurance plan you want to purchase, it is important that you speak extensively with a licensed insurance agent so as to be clear as to the options that are suitable for your needs.

How Much Whole Life Insurance Do you Need?

The amount of whole life insurance coverage you need depends on a number of factors such as your:

• Age,

• Family composition or lack thereof,

• Financial situation,

• Health conditions, etc.

For example, an individual who has a health condition that requires regular medical treatment or expensive medication may need more whole life insurance coverage than a healthier person who wants to leave a bit of “safety cushion” money to their loved ones. The first person is likely to leave behind more medical debt, while the second may only need the funeral expense coverage and the rest can go to the beneficiaries.

In order to ascertain how much insurance coverage you need, you need to understand how much you want to leave your family based on their age and dependency. You also need to review what debts must be paid or would need to be continuously paid for after your demise. Getting the adequate amount of whole life insurance is important because it enables you to protect your dependents from difficulties occasioned by your death and the associated loss of income.

If you are considering using the living benefits of a Whole life insurance, the cap on cash value account is directly tied to the amount of death benefit. The higher the death benefit, the more cash value you may have and higher the premiums that build the cash value for dividends to help tax-free growth.

Alternatively, if Whole Life insurance policy was used for a Buy-Sell agreement, by insuring business partners, the death benefit needs to be high enough for the surviving partner to be able to buy out the business from the deceased's family.

To correctly understand the exact level of needed coverage, speak with an experienced and knowledgeable state-licensed life insurance agent.

How Does Whole Life Insurance Work in Texas?

Whole life insurance serves to provide a financial soft landing to the family and beneficiaries of the policyholder upon death. Whole life insurance is a contract between the insurance company and the policyholder on the premise that death benefits would be paid to beneficiaries after the death of the policyholder. The policyholder will pay certain amounts of money called premiums in return for the policy to remain valid. A beneficiary is an individual or entity that receives the proceeds from a whole life insurance policy. Beneficiaries to a whole life policy in Texas may be individuals or corporate entities. The financial benefits of a whole life insurance policy are in the form of death benefits which are guaranteed upon the death of the policyholder. Cash value which the policyholder can take a loan against while alive is another aspect of the financial benefits of whole life insurance. Premiums under whole life insurance can be periodic or a single sum payment as long as it is stipulated in the policy document. Every whole life insurance contract is unique to the policyholder based on factors such as mortality risk, desired coverage, cost of the premium and other optimal features. A whole life insurance applicant will undergo an underwriting process that includes a medical examination. Based on the applicant’s life expectancy, the policyholder will have the following guaranteed values:

• Level premium that will never change

• Death benefit that will not decrease

• A death benefit to be paid if the policyholder is still alive at the age specified in the contract

Whole life insurance can also yield dividends that are payable to the policyholder. This situation is peculiar to whole life insurance purchased from a mutual insurance company. A mutual insurance company is an insurance company owned by policyholders. Its sole purpose is to provide insurance coverage for its members. The cash value portion which is what earns annual dividends payable to the policyholder is invested in bonds and multiple investments managed by the company to reap dividends. Dividends come in the following options:

• Cash

• Reduced premium

• Accumulate with interest

• Used to offset policy loans

What Does Whole Life Insurance Cover?

Whole life insurance covers the entire life of the insured. It provides a safeguard against financial burdens occasioned by debt or illness or disaster after the death of the insured. The cash value feature of whole life insurance provides an emergency fund that can be borrowed against to offset debts arising from medical expenses and loans. While the death benefits can cover family or beneficiary’s monthly expenses, children’s college tuition, estate planning, funeral costs.

What is the Difference Between Whole Life Insurance and Term Life Insurance?

Whole life insurance and term life insurance are the most popular life insurance coverages in Texas. Term life insurance is a type of life insurance that provides coverage for a specified period of time which is usually 10-30 years. Term life insurance can be level term, annually renewable or decreasing term life insurance. Regardless of the number of years you want your term life to run for, you will be required to pay a monthly premium till the end of the term. Whole Life Insurance on the other hand provides coverage for the duration of the lifetime of the policyholder in exchange for regular premium payments.

The following are the differences that exist between whole life and term life insurance:

• Cost: Generally, the cost of premiums of whole life insurance and term life insurance is determined by a number of factors. However, whole life is a lot more expensive than term life especially if the prospective policyholder is younger. This is due to the lifetime coverage and the cash value component of whole life insurance.

• Premiums: Premiums in whole life insurance can be paid for the duration of the policy or for a shorter period as stipulated in the policy document. Premiums in term life insurance must be paid periodically for the duration of the term stated. Upon the lapse of term life insurance, the policyholder has the option to renew for another term at a slightly higher premium which depends on the new age of the policyholder at the time.

• Cash-value: Term life has no cash value and cannot be borrowed against during financial downtimes and other emergencies. Whole life insurance on the other hand has a cash value with guaranteed tax-deferred growth that can be borrowed against.

• Dividends: Term life insurance holders are not eligible for dividends while whole life insurance policyholders are eligible for dividends if it is available through the insurer.

• Coverage: Under whole life, coverage lasts for the lifetime of the policyholder or till the age of 120 then the death benefits are paid to the policyholder. Term life insurance on the other hand has coverage for a limited period of time specified in the policy which is usually between 10-30years after which the coverage is terminated.

What is the Difference Between Whole Life and Universal Life?

Universal Life insurance is also known as adjustable life is a type of permanent life insurance that is intended to provide benefits until the day the policyholder dies. Premiums in universal life insurance are based on the age of the policyholder at the point of purchasing the policy and the policyholder can change premium payments. Premiums are flexible and cash value grows as the account earnings from a fixed account and index account. The index account has a floor and a ceiling which means that the floor is 0% that has no loss if the stock market crashes and the ceiling means that you have a cap of how much you can earn and the remaining earning belongs to the company.

Do I Need Whole Life Insurance if - FAQ

Do I Need Whole Life Insurance if I Have Term Life Insurance in Texas?

A term life insurance policyholder technically doesn’t need whole life insurance during the term the policy subsists for. However, upon the maturity of the term, which is usually after 10-30 years, benefits are paid and the policy is terminated which means there’s no more coverage. If one has an annual renewal Term policy it gets very expensive as one ages. For example, a young man aged 30 who takes out a term life policy at 30 years of age with a duration of 30 years would be without insurance coverage at 60. To avoid a situation like this, term life has a number of features that can prevent being without coverage at the end of your term life insurance. One of which is a term conversion rider. A term conversion rider is a clause or a stipulation in your term life insurance policy that allows you to convert your term life insurance policy to whole life. In doing this your life insurance policy does not expire and you potentially save money on some of the costs of taking out a whole new insurance policy. Another benefit of this is that the conversion provision doesn’t require the insured to prove insurability especially if the health has worsened over the years.

It is important to always consult a Texas licensed insurance professional who is an expert and is knowledgeable about current whole life insurance options available in Texas. They can professionally discuss the requirements of each of the life insurance types being considered by you and advise on the best available options.

Do I Need Whole Life Insurance if I’m Single?

Single people who live alone and have no dependents typically do not need whole life insurance. However, a single person who has people depending on them and their income - may need whole life insurance. Dependents are not necessarily just children, they may be aged parents, young children, siblings and relatives who are dependent on the breadwinner’s income to lead a normal life.

The main reason for buying whole life insurance is to protect dependents and beneficiaries. It also protects the earnings of the single insured person, so the beneficiaries will not be affected after their death.

Do I Need Whole Life Insurance if I Have no Dependents?

An individual with no dependents typically doesn't need whole life insurance because whole life insurance is ideally obtained to protect dependents from the harsh effects of losing their bread winner. The changing dynamics of medical conditions and life in general necessitate those who have no dependents to get life insurance. For example an individual who has no dependent and whose income cannot cover recurring debts such as mortgages or college tuition debts should get whole life insurance because the cash value component would come in handy to offset some of these recurring expenses during the retirement years - as tax-free income.

Make sure to ask your agent about the tax-free retirement income options available in whole life policies.

What Happens if you Don’t Use Whole Life Insurance?

Going by how whole life insurance operates, benefits are to be paid upon the death of the policyholder. When the insureds die, beneficiaries are required to file a claim with the insurance company to claim the death benefits. The insurance company requires documentation and supporting proof to claim before paying out death benefits. Beneficiaries are asked to provide the following documents:

• A copy of the whole life insurance policy,

• A certified copy of the death certificate,

• A death claim form.

There is no deadline for filing whole life insurance claims but beneficiaries are advised to do it as soon as possible after the death of the policyholder. Whole life insurance due to its nature can have the ability to keep paying off premiums from its cash value even after the death of the beneficiaries. Note that whole life insurance policies have an “age of expression” after which the insured person is assumed to be dead and the contract is voided. In the case of whole life insurance, that age is from 100-125 years of age (depending on the insurer). Most companies will pay death benefit to the policy holder if the insured is alive at the age of expression. The insured is paid their full benefits and the policy comes to an end. If after the death of the insured, the beneficiaries don't come to claim the death benefits of the policyholder after three years, the insurance company is to turn it into the custody of the state as unclaimed benefits. Individuals in Texas can go to the Texas state website to search for unclaimed insurance benefits.

The cash value behaves according to the option that the insured selects during the purchase:

• Option A - leaves the cash value in the account, for growth.

• Option B - uses the extra cash value in the account to buy annual “paid-up additions” to the death benefit. This grows the death benefit year over year.

Once the insured dies, the cash value that was left unused through living benefits or the paid-up additions is lost. The insurer keeps it, and uses it to pay out a portion of the death benefit it owes to the beneficiaries. If Option B was chosen during the purchase of the whole life policy, the insurer still keeps the unused portion of the cash value account, but pays out a larger death benefit. The cash value in the policy will buy the additional death benefit year after year - increasing the payout.

If the insured borrowed using the cash value account as collateral, upon the insured’s death the insurer takes the borrowed/loaned amount and any interest due before paying the remaining death benefit to the beneficiaries.

Make sure to discuss your needs and especially the cash value options with a knowledgeable and experienced state-licensed life insurance professional.

Who Can Get Whole Life Insurance in Texas

Who Qualifies for Whole Life Insurance?

Every legal adult and child who is healthy and can afford the payment of premiums can qualify for whole life insurance. All applicants go through a process of underwriting. Underwriting is a process through which insurers determine whether an applicant is qualified to be insured by the insurance provider. This involves evaluating the risks involved in insuring an applicant:

• Age,

• Health conditions

• Criminal records

• Driving records,

• Credit report

Upon the conclusion of the underwriting process, applicants who are successful in the underwriting process are deemed qualified for whole life insurance and given a table rating, according to which the pricing is assigned. It is easier to qualify for whole life insurance if the applicant is young and without health complications. However, older adults with health conditions can speak to a licensed life insurance agent to determine whether they qualify for whole life insurance and what other options are available to them if they don't.

Who Needs Whole Life Insurance?

Essentially, you need whole life insurance if:

• You are an individual who would like to provide security for your family, loved ones and dependents in the event of your death, or

• A business owner who wants to have a Buy-Sell agreement, and funds it with a Whole life policy. One does not have to have business partners to buy a whole life policy. As a solo business operator you may want to buy a whole life, so the surviving family members can help pay for any outstanding loans or company expenses.

Depending on the policy amount, death benefits can be used to offset expenses such as funeral expenses, final medical bills, mortgage payments, college tuition that would have posed a problem to the beneficiaries if the breadwinner didn't take out a whole life insurance policy before death.

Additionally, you may need whole life insurance in any of the following situations:

• You need permanent coverage, that will continue as long as you keep paying the premium.

• You need an unchanging (level) premium for as long as you are paying it (unless you choose to increase the death benefit).

• You need a cash value account component, in addition to the pure life insurance features.

Whole life insurance is best for:

• Funding trusts

• Paying estate taxes after death (if higher than the exemption)

• Funding “Buy-Sell” Agreements for business (solo or partnerships)

Regardless of the motivation for getting whole life insurance, it is important to discuss your desire to get whole life insurance with an experienced and knowledgeable state-licensed life insurance agent. Such professionals can advise you on the whole life insurance process and which whole life insurance policies are the best for you.

Who Should Get Whole Life Insurance?

Every adult in Texas should consider getting whole life insurance especially if they need coverage for themself and their loved ones for the rest of their life and after their death. Whether you’re a business owner looking to expand your business, or you’re an adult with dependents or a parent with young children or you’re a retiree who is looking to finance funeral costs have access to tax-free sources of income, a whole life insurance plan gives you leeway to be able to cushion the effects of certain types of emergencies that occurs with life.

You should get whole life insurance if you fall into the categories stated below:

• Individuals who are breadwinners and have dependents that are minors or aged and cannot reasonably fend for themselves.

• Individuals who are able to cover regular premiums without any difficulty.

• Individuals who have regular and steady streams of income and would like to plan or guard against future financial downtimes.

• Individuals who have a solid financial planning strategy that includes having whole life insurance.

• Individuals who have a disability or a special needs child or relative so as to set up a trust for care after death.

A licensed insurance agent is in the best position to advise you on whether you need whole life insurance and it is advised to consult one before taking out a whole life policy or any other cash value life insurance policy.

PROs and CONs of Whole Life Insurance in Texas

PROs of Whole Life Insurance

The following are the benefits of whole life insurance:

• Lifetime Coverage: Whole life insurance is for the lifetime of the policyholder however long the policyholder lives. As long as premiums are paid when due and the policyholder doesn’t cancel the policy, whole life insurance coverage subsists as long as the policyholder is alive.

• Premiums in whole life insurance are fixed and do not increase as the policyholders get older. This gives an idea as to the sum that will accrue as death benefits to beneficiaries upon the death of the policyholder.

• Cash Value Component: Whole life insurance provides a cash value savings component where a portion of paid premiums earn dividends. Policyholders can take a loan from the cash value account in the event of an emergency such as ill-health, mortgage, or college funding and more.

• Non-Taxable Benefits/cash: The proceeds of whole life insurance are not taxable and provide a stream of non-taxable funds for the policyholder via loan provisions.

• The proceeds from whole life insurance cannot be the subject of bankruptcy proceedings neither can they be attached, executed or garnisheed in any legal proceedings.

• Creditor and lawsuits proof. Meaning a creditor can not get to your policy or cash values.

  Overall, discussing your whole life insurance needs and concerns with a licensed insurance agent is ideal because they are in the best position to address your concerns regarding the current insurance market.

CONs of Whole Life Insurance

The following are the cons of a whole life insurance policy:

• Higher cost: Whole life insurance is considerably higher than other forms of life insurance. This is because most whole life policies do not have the cost of insurance set in the policy so the insured can raise policy cost as they age. This is also because a part of the premium goes into a cash-value account.

• Smaller death benefit: The death benefit from whole life insurance usually turns out to be lower than the amount paid in premiums and the death benefit may, in turn, be inadequate for providing adequate protection in some cases.

• The policyholder has no control over the investment of the cash value portion of whole life insurance especially if the policyholder is experienced with the workings of investments.

• Dividends:The company also declares dividends upon the payment of all expenses incurred by the company. In the event that there is nothing left after the insurance company has paid up its expenses, there would be no dividends to declare.

• The cash value aspect of whole life insurance reverts to the company upon the death of the policyholder. In the event that a policyholder defaulted on one or more premium payments, the premium payments are deducted from the death benefits to be paid and the difference is paid to the beneficiaries.

Regardless of the cons associated with whole life insurance, it is important that you speak with a licensed insurance agent to help you weigh the pros versus cons, based on your specific needs and how best to achieve them.

Is it Worth Getting Whole Life Insurance in Texas?

Whole life insurance is worth it because of the permanence associated with the plan. Whole life insurance has no expiry of coverage and is permanent until the death of the policyholder. Whole life insurance is also not subject to taxation. If you’re an individual looking to provide your family with a financial cushion after your demise or you’re looking to take care of expenses that your income is inadequate for or you need to pay for emergencies such as surgeries or mortgage or students loans, you should consider getting whole life insurance after speaking to an experienced insurance agent in Texas.

What Happens if you Don’t Have Whole Life Insurance?

It is not a crime not to own a whole life insurance policy in Texas however if a breadwinner dies without taking out any life insurance policy or leaving behind significant savings, the family of the deceased is likely to be burdened with funeral expenses, hospital bills, and other types of debt that would ordinarily have been taken care of by the benefits of a whole life insurance coverage. Not having whole life insurance (or any other life insurance coverage) reduces the quality of life of your immediate family and dependents due to after-death expenses and living costs.

Make sure to discuss your needs with an experienced and knowledgeable state-licensed life insurance professional with access to multiple insurers and plans.

Why is Whole Life Insurance Important?

Whole Life Insurance is important because it helps ensure beneficiaries of the policyholder are covered even after the death of the policyholder in Texas. It is important to get whole life insurance in your 30s when you’re younger and have fewer health risks as this will help you maximize the benefits of the policy with regards to the cash value. Getting whole life insurance at this age is more affordable than when you’re older. It also provides a cash value that grows without the burden of being taxed. Whole life insurance is important for the following reasons:

• It helps in mitigating the trauma of a breadwinner’s passing by supporting the financial needs of the family by taking care of after-death expenses such as funeral expenses

• It gives the policyholder a steady stream of tax-free retirement investment i.e., cash value. This cash value can be borrowed against, to offset emergency and unplanned expenses.

It is however important to discuss whole life insurance exhaustively with Licensed Texas insurance agents in order to be properly appraised of the importance of whole life.

What Happens When your Whole Life Insurance Lapses?

An insurance policy lapses when the policyholder defaults on the payment of premiums. The consequence of a lapsed policy is that if the policyholder dies within the period of lapse, the premium would be deducted from the death benefits. The insurance provider reserves the right to cancel the policy of a holder who has defaulted on payment of premiums. However, before the holder’s policy is canceled, a grace period of 31 days is given in Texas within which the holder can pay up the outstanding premium without interest. When a policyholder fails to pay a premium even after the grace period, the policy lapses. This means the policyholder no longer has coverage, and beneficiaries of the policyholder do not get any benefits in the event of his death. The insurer can also cancel the policyholder’s insurance plan if premium payment is not paid within the grace period. If this happens, the insured can take the following steps to redress the action:

• They can appeal the cancellation only if the cancellation was unwarranted. The cancellation can be appealed by contacting the policy provider. If the appeal is denied, a policyholder may contact the Texas Department of Insurance via phone at (800)252-3439. An online complaint can be submitted to protest the cancelation.

• A policyholder can also choose to sue his insurance company if unsatisfied with the outcome of the cancellation appeal.

To avoid the lapse of your insurance policy, it is important to be prompt in the payment of periodic premiums. You can also contact a licensed life insurance agent to inform you of the options available to you and the appropriate steps to take regarding the cancellation of your policy. Licensed and experienced life insurance agents are the best sources of information regarding whole life insurance.