Why Do you Need Life Insurance in Texas?
The basic purpose of life insurance policies is to pay a predetermined sum of money to people named in the life insurance contract as beneficiaries upon the death of the named insured. The more advanced types of life insurance have multiple other features.
While life insurance for seniors in Texas is primarily taken out to cover funeral expenses, life insurance can be advantageous for everyone, regardless of age or income. People buy life insurance policies for different reasons:
Death Benefits - are meant for those who are left behind after the insured’s death,
Living Benefits - are the features of life insurance that the insured individual can use while they are still alive. Whatever gets used, it is subtracted from the Death Benefit before it is paid out to the beneficiaries.
The Death Benefit is designed to help the family members and friends pay for the final death expenses, to remove this costly responsibility from their shoulders. Common uses of the death benefit are:
Pay the final medical costs of the deceased,
Cover the funeral expenses,
Pay off the mortgage on the family home (or other large financed purchases),
Establish a children's college tuition fund,
Funding a trust - to create a legacy by establishing an inheritance,
Protect business partnerships, where the business partners can buy out the deceased partner’s portion of the business from their family (Buy-Sell Agreement).
The Living Benefits of permanent policies turn them into a financial tool that allows the insured to accumulate cash value similar to a savings account. As the cash value grows, it can be used by the insured to:
Generate tax-free retirement income,
Borrow against the savings,
Pay for emergency expenses,
Pay the life insurance premium using the account growth revenue, and more.
Speak with a knowledgeable state-licensed Texas life insurance professional who can assess your life insurance needs and make recommendations of products that can fit those needs best.
How Does Life Insurance Help me?
The main way life insurance helps is by covering the costs that occur after the insured individual dies. The Death Benefit helps cover the funeral expenses, any remaining debt and taxes, and possibly leaving some amount of tax-free money to family, friends, or charities as your final gift.
The second way how life insurance helps is by providing extra financial tools which can be used by the insured during their lifetime. The Cash Value of permanent life insurance can be used as a part of the financial management strategy, to help the insured:
Grow cash values tax-deferred
Use cash value account to cover the policy premiums
Loan against the cash value to get access to tax-free money
The third way how life insurance helps you is through Living Benefits, which are extra options (Premium Riders) that can be added to the policy, to further increase its usefulness for the insured individual. If the money is paid out by the insurer for a covered rider while the insured is still alive, upon their death the insurer deducts the used benefits from the full face value of the death benefit.
The most commonly purchased Living Benefit riders (optional add ons to life insurance) in Texas are:
Long-Term Care Rider
Accelerated Death Benefit Rider
Terminal Illness Rider
Critical Care Illness Rider
When Do you Need Life Insurance?
You never know what the next day holds, so you always need to plan for what-ifs, regardless of your age. The more people there are that depend on you, the more likely you are to need life insurance. The basic way of looking at any insurance is: What if the insurable event happens and there was no coverage in place? Now what? Who pays for what and how do they get the money to afford it?
It is the same exact way for life insurance policies. Ask yourself a question: What will happen financially when I die? In the most basic form, someone will need to pay for your final expenses (medical bills, funeral costs, etc.). Do you know who that someone is? Did you leave them any money to cover such costs, or do you expect them to pay for your funeral out of their own savings?
Dependents and anyone who will be financially affected by your death also need to be accounted for. If you have a spouse and children, whatever money you leave behind should cover the portion of the expenses that you are no longer contributing to.
If you have a property with a loan on it, your life insurance policy death benefit can pay off the mortgage, leaving the beneficiaries with paid off inherited real estate.
Businesses with multiple partners may need life insurance as part of the Buy-Sell partnership agreements, in order not to dilute the control of the company after the passing of any partner. When one of the partners dies, the death benefit of the policy is used by the business to buy out the deceased partner’s share of the business from their family. A business may offer a guaranteed issue group life policy open to all employees, and/or insure the lives of the key employees, offsetting the costs that will be borne by the company while the replacement for the deceased is located and trained.
Beyond the death benefit (which is the main purpose of life insurance) you need life insurance to enhance your end of life. The living benefit riders allow you to use the death benefit to cover various medical expenses while still alive. Again, the life insurance coverage alleviates the financial hardship that otherwise you would have left behind, for your family to deal with.
The final tier when you need life insurance in Texas is to enhance your financial portfolio. Life insurance can help you grow money tax-deferred. Life insurance can:
Compete with retirement investment options like IRA and 401K while guaranteeing zero-loss,
Act as your own bank - to borrow against
Provide tax-free income during the retirement years, and much more.
Only a licensed life insurance professional can provide you with advice based on your needs.
What Kind of Life Insurance Do I Need?
The kind of life insurance you need depends primarily on your financial situation, family needs before and after you die, and what features are more important for you. These needs vary across individuals and can be determined based on certain factors such as debt, mortgage, age, and status of dependents and how much they would require upon the demise of the insured.
Some Texas companies offer life insurance. If the coverage is for a business, the decision factors are tied to the size of the business and the purpose of the coverage: is it covering the lives of key employees or being offered as an employment bonus perk of group life coverage for all employees of the organization. Employees are usually given several affordable options.
Life insurance policies are divided into two broad categories:
Term life insurance
Permanent life insurance
TERM LIFE INSURANCE
Term life insurance is a form of life insurance policy where the life insurance company provides coverage to the insured for a specified period (5-30 years). It pays the Death Benefit and usually does not offer extra features. Term life is the cheapest life insurance option that is usually purchased as a temporary solution to provide fast coverage. The insured’s age and medical conditions determine the cost of premiums. The death benefit is paid to the named beneficiaries if the insured dies within the policy term.
The following are types of term life insurance policies:
Level term life insurance: This is a form of term life insurance where the death benefit amount and premium amount remain the same throughout the policy term.
Decreasing term life insurance: Under this type of term life insurance, the death benefit amount decreases during the duration of the policy. This is useful if the policy ensures the payoff of a loan. For example, since the mortgage loan balance goes down over time, the death benefit of the decreasing term life insurance that is supposed to cover its payoff is also slowly decreased, to match the loan. As the death benefit decreases, so do the monthly premium costs. Commercial banks frequently require this type of a policy on commercial loans.
Convertible term life insurance: The insured under this form of term life policy has the option of converting to a permanent (Whole Life) insurance policy any time before they turn 70 years old. This is a useful feature if you plan to upgrade the policy without having to undergo a medical exam. A lot can change in 30 years with your health.
Renewable term life insurance: This term life insurance policy allows the insured to renew their term life policy at the end of the term at a new higher premium corresponding with the current age bracket.
A term life insurance policy can also be converted into a whole life insurance policy using an accelerated death benefit rider. An accelerated death benefit rider in term life insurance is a clause stipulated in the contract that the insured can use to modify or add optional add ons to their term life insurance policy option to match changes in life events not covered by the original term life insurance policy.
You need term life insurance if you do not have a lot of savings, but have short-term expenses that you are trying to cover after your death. It is generally best suited for:
Young families with children and/or home - to cover mortgage protection, school and college tuition, etc, or
Single young individuals, who want to lock in the lowest cost life insurance option for the future.
PERMANENT LIFE INSURANCE
A permanent life insurance policy runs throughout the lifetime of the insured as long as they keep up with monthly premium payments. It builds cash value over time. Cash value is a portion of the premium payments by the insured that is kept in a separate account to grow and accumulate. After a certain period, the insured can borrow against it to offset pressing expenses, generate tax-free retirement income, or pay for the needed costs of the terminally ill. Permanent life insurance policies usually stay in force until the insured reaches the age of 121 years. If the insured attains this age, the death benefit is paid to the insured and the policy matures. Death benefit provides a safety net for the beneficiaries of a permanent life insurance policy after the death of the insured. Below are the types of permanent life insurance:
Whole life insurance
Universal life insurance
Variable life insurance
Final expense life insurance
Whole life insurance is a type of permanent life insurance policy that covers the insured throughout their lives. Whole Life insurance has a cash value component that serves as a tax-free fund the insured can borrow against to offset financial emergencies and debt. Borrowing from the cash value does not render the insurance coverage null and void; rather it only reduces the death benefit amount that will be paid to your beneficiaries upon your demise.
Universal life insurance does not have a set price for premiums payable. Instead, it has a minimum and maximum premium price, and the price of premium payable is usually the minimum amount in the price range. The minimum price premium is what keeps the policy in force. In universal life insurance, premiums are largely determined by age, gender, medical conditions, and the life insurance coverage amount. Universal life insurance has a cash value component from which the insured can borrow to serve as an income supplement. The loan, if unpaid, reduces the death benefit payable upon the death of the insured. Also, premium payments and death benefits are flexible and can be adjusted to give room for changes in life events. Cash value under universal life insurance earns interest based on the minimum interest rate or the current market rate, whichever is higher.
Universal life insurance differs from other forms of life insurance in the following ways:
Universal life insurance offers flexible premium payments and may be less expensive than whole life insurance, while whole life insurance has fixed premiums which are usually more expensive.
Universal life insurance charges interest on money borrowed from the cash value, while whole life insurance does not. Unpaid loans under whole life insurance are usually deducted from the policy’s death benefits.
Universal life insurance can be paid up within a certain time period, where the built-up cash value generates enough income to sustain the policy without ever paying it again. For example, pay off the policy by the age of 50 and never pay again.
Universal life insurance can offer Zero-Loss guarantee built into the cash value account, where regardless of how bad the underlying market index has performed over the course of the year, your loss potential never goes into the negative. You will always maintain at least what you had. When there are gains at the end of the accounting term, they get added to the previous balance and locked as new Zero-Floor.
You need universal life insurance in Texas if:
You are young and want to take advantage of your good health and lack of pre-existing conditions by locking in low premium rates. Your good health makes you a minimal risk to the life insurance company, and the interest credited to your account can cover the policy cost.
You have dependents who are minors and would benefit from your access to the cash value for living benefits and to offset debts such as college debts, kids' tuition or mortgage. Death benefits from the policy would also protect them from financial stress after your sudden demise.
If you’re wealthy and need a life insurance policy option that doubles as an investment with tax-free returns and retirement income substitution in addition to the flexible death benefit.
Variable life insurance policy has a cash value component that can be invested for higher returns in an investment such as mutual funds. This investment fund could also underperform thereby reducing the amount of the cash value. Variable life insurance allows for flexibility in choosing the amount of premium remittance and cash value accumulation. An insured can adjust premium payments based on personal needs and investment goals but premiums have to be sufficient to maintain cash value; else the plan may lapse. Variable life insurance is different from other types of life insurance in the following ways:
Variable life insurance has investment options for growing cash value, while universal life insurance grows at a rate set by the insurance company. Whole life insurance cash value does not grow.
The cash value in variable life insurance has to be kept at a certain amount below which it cannot fall so that it does not lapse, especially if the insured has borrowed against it. On the other hand, whole life insurance does not have a minimum cash value. The loan amount can just be deducted from the cash value left and the difference is paid to beneficiaries.
Variable insurance is akin to the stock market, where the insured bears all the risk. Even the death benefit is not guaranteed. As a high-risk product, variable life insurance is sold and discussed only by Texas life insurance agents who are also licensed to sell securities.
Final expense life insurance policy (also known as Burial insurance) protects your loved ones from bearing the costs of end-of-life expenses such as medical bills, funeral arrangements and costs, or cremation expenses after you pass away.
Final expense insurance in Texas is usually geared towards those who cannot qualify for any other type of affordable senior life insurance due to a pre-existing condition and/or age. Because of this final expense insurance cost is usually much more expensive than the alternatives and offers a small death benefit.
A Simplified Issue FE policy can be issued based on a short medical form with a limited amount of qualifying questions, without undergoing a physical.
A more expensive Guaranteed Issue FE policy provides coverage for anyone who is willing to pay the associated premium. Guaranteed issue GE offers life insurance for seniors without medical exams or submitting any medical records.
Final expense life insurance differs from other life insurance types in the following ways:
Final expense life insurance offers smaller coverage amounts and death benefits than term life or other permanent life insurance
Final expense life insurance death benefits primarily help cover expenses such as burial costs of the insured, medical bills, and other end of life expenses. On the other hand, death benefits under permanent life insurance and term life insurance are usually larger and are used to cover a much wider range of financial needs and expenses. Ultimately, the beneficiary decides how to use the money.
You need final expense insurance in Texas if you are a senior citizen who is looking for the last-resort life insurance coverage. If all other less expensive options have failed - Final Expense life insurance companies will work with you.
According to the National Funeral Directors Association of America, the average funeral cost in the U.S. is around $7,848 while the average funeral cost with cremation is $6,971.
What Type of Life Insurance Do you Need?
Generally, the type of life insurance you need in Texas depends on your particular needs and how long you intend to keep the policy in force. For instance, a young individual can take advantage of their good health to lock in affordable premiums for term life insurance. A breadwinner who has dependents would typically need a life insurance policy with a cash value component that can be borrowed against for living benefits or to offset debt. If you want a life insurance option that allows you to build cash value for investment purposes, then you need universal type life insurance. A terminally ill individual who has no life insurance needs final expense guaranteed issue life insurance in order to plan ahead to cover burial expenses, medical, and hospital expenses.
Always discuss your life insurance needs with knowledgeable and licensed insurance professionals who are able to assess your needs and are legally allowed to suggest the most optimal type of coverage to fit those needs.
How Much Life Insurance Do I Need?
Your unique needs determine how much life insurance coverage you need in Texas. Whether these needs include providing financial support to your loved ones and dependents, or debts to be repaid, or even funeral costs or burial expenses, it is important to provide adequate coverage to cover all the needs. Your policy’s death benefits should be enough to cover your financial costs and obligations and also provide living benefits for your dependants. Financial obligations may include children’s college tuition, mortgage, income replacement, and other debts.
While you can try to determine how much life insurance you need using the DIME method yourself, it is best to speak with a professional. DIME is an acronym representing debt, income, mortgage, and education. These are areas to consider for an estimate of how much life insurance you need for family use:
Debt: This includes how much debt would be thrust on your beneficiaries upon your death. Debts include credit card debts, car loan payments, college debts, credit card debts and money borrowed from friends or family, and quite possibly: federal or estate taxes
Income: You can determine this by multiplying the replacement income your family will need by the number of years they will need it after your death. For example, if your youngest beneficiary has six years left before becoming a legal adult, you can multiply your income by six or seven years
Mortgage: Determine the amount needed to discharge your mortgage
Education: Determine the amount that will be enough to cover your children’s college tuition even in your absence.
If the life insurance coverage is for a business, it needs to assess the following:
For a Buy-Sell agreement, the business partners need to get enough coverage on each other, where the death benefit will be enough to buy out their share of the business from the surviving family.
For Key-Employee life insurance coverage, the business needs to calculate how much it will cost the company to recruit and train a replacement of the deceased employee.
For Guaranteed Acceptance Group life insurance, which is given for free or at a reduced cost to the employees, the amount of the offered death benefit depends on the goals of the company.
Consult a licensed Texas life insurance agent to help you determine the needed coverage amounts at the most affordable rates.
How Long Can we Expect to Live?
Life expectancy in the United States is steadily improving and how long we are expected to live, depends on several factors. The National average life expectancy in the United States in 2018 was 78.7. In 2019, it was 78.8, while the average life expectancy in 2020 was 77.0, partially due to the COVID interfering with the statistics.
Life expectancy average in Texas is around 79 years old. The highest lifespan in the state is in Presidio County, with nearly 89 years old, while the lowest is in Donley County, closer to 72.
Average lifespan also varies between gender, and women are statistically proven to live longer than men. In 2018, nationwide life expectancy for men was 76.2, while it was 81.2 for women. This increased in 2019, with the average life expectancy for men at 76.3 and women at 81.4.
When Do you no Longer Need Life Insurance?
Life insurance policies are one of the avenues through which you can save your dependents and loved ones from getting into financial troubles after your demise. Financial position and risks should be assessed and reassessed regularly to see if there is a need to keep your insurance policy in force or not. Contrary to popular belief, not all individuals need life insurance for the duration of their lives. With changes in life events, there are instances where you no longer need life insurance coverage. Such instances include:
When you funeral expenses have been already prepaid
When you have acquired enough savings in your retirement fund to take care of yourself and your dependents
When your dependents can fend for themselves and do not need financial support.
When your mortgage has been paid off
When you have achieved all your financial goals
It is important for you to consult with an experienced Texas-licensed life insurance agent and discuss your options prior to terminating your life insurance policy in Texas. If you cancel the policy, it will likely cost you more to get a replacement, so don’t stop paying it until you talk it over with a pro.
Who Needs Life Insurance?
Generally, you need life insurance in Texas for the following reasons:
Paying off the insured’s debts, bills, and mortgage: Having a life insurance policy enables you to plan ahead by removing the burden of repaying debts and final expenses from the pocket of your surviving loved ones and dependents upon your demise
Business capital, funding and employee Welfare: If you are a business owner in Texas, you need life insurance not only for yourself but for your business. Buying life insurance protects your dependents from paying for loans and other business expenses from their pocket. It also gives business owners access to funds to revive a failing business, especially if the life insurance has a cash value component
Death Benefits: Life insurance death benefits can be used to pay for funeral arrangements and other end-of-life expenses incurred after the insured’s demise. These end of life costs include burial costs, medical bills, estate settlement costs, and delinquent obligations
Living benefits: Living benefits can offer insureds access to a portion of the death benefits while they are alive, especially under poor financial situations. The living benefits component of some permanent life insurance plans can become tax-free income accruing to the insured while their life insurance policy is still in force.
If you need life insurance or think that you can benefit from such coverage, consult with a knowledgeable life insurance agent licensed by the Texas Department of Insurance (TDI). Anm experienced agent can assess your or your business needs, show you the available life insurance options (to fit your needs), and run life insurance quotes on the options you choose.
