What Are The Two Main Types of Insurance in Texas?
Overview
The two main types of insurance in Texas are:
- Property and Casualty insurance (P&C), and
- Life and Health insurance (L&H).
Texas P&C insurance comprises mainly homeowners insurance, auto insurance, and different types of business (commercial) insurance, while L&H insurance consists of life insurance, annuities, accident insurance, and health insurance.
These represent the different types of insurance policies and plans offered in the Texas insurance industry, the second-largest insurance market in the U.S, after California. The Texas Department of Insurance (TDI) regulates the industry and protects the rights of consumers in the state. The TDI works in conjunction with the Office of the Public Insurance Council to regulate P&C insurance in the state.
What is Property and Casualty Insurance in Texas?
Texas property and casualty insurance policies offer protection from risk in two basic ways: protection for personal and commercial **property **and protection against legal liability.
What is Property Insurance?
The term “Property insurance” describes the various types of insurance policies written to protect the insured from loss of personal property such as a car, home, furniture, jewelry, or business/commercial property. It indemnifies (compensates) the insured from the financial loss they would have suffered in the event of damage, theft, destruction, or loss to their personal or commercial property.
What is Casualty Insurance?
Casualty or Liability insurance on the other hand refers to insurance policies designed to provide coverage for liability incurred by the insured for causing property damage and/or bodily injury to others by accident. Such liability may include medical bills, court judgments/legal bills, and auto repair expenses.
Liability insurance is quite popular among small business owners in Texas, because it protects the business from liability if a customer receives damages in association with the business, or an employee gets injured on the job. So, if a restaurant guest slips on a wet floor, falls and gets hurt, or a medical professional is being sued for malpractice, it is handled using a type of business liability insurance.
Based on the type of coverage provided, Texas P&C policies are divided into two main lines: personal and commercial lines.
- Personal P&C Insurance policies in Texas provide coverage for privately-owned or personal property. The two main lines are auto and homeowners insurance. Both of them offer options of coverage of the property from damages and from your liability to others.
- Commercial (Business) Insurance provides coverage for commercial properties and employees of a business. Texas business insurance includes general liability, inland marine, ocean marine, surety bonds, aviation, workers' compensation, crime, and commercial auto insurance, to name a few.
Texas P&C Statistics
Texas offers a vibrant marketplace for property and casualty insurers. With almost 200 domestic (registered in Texas) insurance companies and over 1,100 companies licensed to sell a variety of personal and commercial coverages, Texas is the nation's second-largest P&C insurance market. Accounting for approximately 9% of the national P&C insurance market, it is second only to California.
At the state level, Texas P/C insurance accounts for 37-39% of all premiums written in the state, with the Personal policies making up more than half of the market.
Conversely, Commercial (Business) P&C lines (including accident & health) make up approximately 47% of all premiums written in Texas P&C insurance.
What Does Property & Casualty Insurance Cover in Texas?
Here are a few examples of P&C insurance coverages in TX:
Texas Private Auto Insurance
The private automobile insurance coverage pays for the other driver’s car repair and medical bills when an auto crash is caused by you. Depending on the kind of coverage purchased, it can also pay to repair or replace your stolen or damaged car. In Texas, auto insurance is required; Texas law requires all drivers (commercial and private) to have at least $30,000/$60,000/$25,000 minimum liability coverage.
There are different types of coverage available in private auto insurance, including collision, comprehensive (other than collision), medical payment, personal injury protection, uninsured/underinsured motorist, towing and labor coverage, and rental reimbursement coverage.
With almost 24 million vehicles (Private, Commercial, and Publicly owned) registered in Texas, private auto insurance accounts for approximately 35% of the Texas P&C market.
Texas Commercial Auto Insurance
Commercial auto insurance covers liability and property damage protection for cars, trucks, and vans used for business. It also covers food trucks, service utility trucks, trailers, and other types of vehicles. Commercial auto insurance accounts for approximately 8% (including Liability and Collision/Comprehensive) of the entire P&C market in Texas.
Texas Commercial Liability Insurance (CLI)
CLI covers the cost of repair or replacement for building and business property damaged by a fire, storm, or other events covered by the policy. It also covers the cost of part of the money lost when a business is unable to operate normally. Commercial Liability Insurance accounts for approximately 12% of the entire Texas P&C market.
Texas Residential Property Insurance
With over 11,680,000 housing units in the state, homeowners' and renters' insurance accounts for around 17% of the Texas P&C market. (Note: Apartment complexes are usually insured with a combination of coverages, including the Business property insurance)
Texas Workers' Compensation Insurance (WCI)
WCI covers the medical expenses incurred to treat employees for job-related injury or illness. If an employee dies because of a work-related injury or illness, the insurer pays burial expenses and benefits to the family.
- Excess workers' compensation policy protects a self-insured employer against workers' compensation claims that exceed the dollar limit specified. It covers the losses up to a certain limit or the entire amount, depending on the employer’s choice.
The Division of Workers’ Compensation (DWC) under the Texas Department of Insurance regulates Workers’ compensation in Texas.
Texas Flood Insurance
Flood insurance pays for damages caused by flood to your home. Most commercial property policies do not cover damage from flooding. To be protected from flooding, interested persons must buy a separate flood policy. Texans can buy flood insurance from the National Flood Insurance Program or from insurers that sell it. A 30-day waiting period is required after purchase before flood policy coverage becomes active.
What Is Life, Accident & Health Insurance in Texas?
Life, Accident and Health is a group of 3 insurance types that insure an individual is a person. Here’s an easy way to understand them:
- Life insurance provides coverage on a person’s life, that is, in the event of a policyholder’s death or terminal illness, a named beneficiary will be paid a death benefit. Most (see note) Texans purchase life insurance policies to cover their funeral expenses and to provide financial protection for their loved ones after they are gone.
- Accident and health insurances, on the other hand, provide coverage for medical and non-medical expenses incurred by the insured (policyholder) while still alive.
- While accident insurance covers expenses from accidental bodily injury, health insurance only covers expenses incurred from an illness.
Note: In addition to the Death Benefit, Life Insurance offers multiple Living Benefits.
TX Life Insurance
Life insurance company makes you (the insured) a promise to pay an agreed upon sum of money (death benefits) to your named beneficiaries upon your death. The money received by the chosen beneficiaries can be used to settle your funeral costs, estate taxes, or any other purpose the beneficiary chooses. Death benefit is not a taxed income for the beneficiary.
The amount of coverage varies depending on age, health status, and risk factors. Also, factors such as the coverage amount, location, and features of the specific policy chosen determine the amount of premium charged. Typically, a healthy young person with no risky hobby/career is charged less premium compared to someone with risks.
Some examples of life insurance coverage available in Texas include:
Individual Life Insurance: The policy is written on an individual’s life and the coverage is for the person alone (or their spouse, if a spouse term rider is added). It is designed to provide financial security for family members or a surviving spouse when the insured dies.
In contrast, Group Life Insurance is purchased by a sponsoring organization to protect the lives of members of a group. It is designed mainly for employer-employee groups, but other groups can participate (labor unions, multiple employer trusts, and associations). It is usually much more affordable compared to individual life insurance (low premium), the cost of coverage is based on the ratio of men to women and the average age of the group. The premium is either fully paid by the employer or shared with the employees, and it is annually renewable.
If a member dies while the policy is still active, death benefits get paid out to the insured’s named beneficiaries. And if an employee leaves the group for any reason, they are allowed to convert to an individual life policy within 31 days after the termination date. Examples include Group term life (the most common), Group universal life, and Variable group universal life.
Credit Life Insurance provides funds to pay off a large loan or its balance if the insured dies before the loan is fully paid. The creditor is both owner and beneficiary of the coverage. It is legal in Texas for a creditor to request a credit life coverage but cannot dictate the specific insurer to buy from. Credit life is usually written as a decreasing term policy. However, if the debtor has life insurance, some of the death benefits can be assigned to the creditor as payment for the loan.
Industrial Life Insurance _policy is designed _for industrial workers or people who cannot afford any other form of insurance because of the high premiums.
Types of Life Insurance
Two main types of life insurance policies are written in Texas based on the duration of each policy: Term life (temporary) and whole life (permanent).
TX Term Life Insurance
Texas Term life insurance has an expiration date by definition. It offers temporary protection, for a specified period of time (term) - usually up to 30 years. Term life provides the highest amount of coverage for the lowest price (premium). This is because Term life insurance is purely a life insurance product. It does not have any savings features and therefore has no growth. Hence, Term life is also known as Texas Pure Life insurance. The premium payments in Term life insurance remain unchanged (level) throughout the term, and death benefits are paid in full to the beneficiary if the insured dies before the policy expires.
TX Whole Life Insurance
Texas whole life insurance policies provide permanent protection and include a cash value (or savings) element. The policy is guaranteed to provide Death Benefit coverage throughout the lifetime of the insured (usually - 121 years old or till death, whichever comes first), except if the insured stops paying premiums or chooses to cash out the policy. The cash value of a Whole life insurance is built by saving a portion of each premium paid into a separate account. Its accumulation becomes a living benefit for the insured and can be invested, withdrawn, or borrowed against. Cash value can be used as collateral for a loan, making it a great living benefit option for tax-free retirement income, or used to cover monthly premiums, if you want to skip a couple of months.
After the insured dies, death benefits are paid to a named beneficiary. If the loan was taken out against the cash value, the death benefit first satisfies the loan repayment, with the remainder going to the beneficiary. Due to these extra features, whole life insurance usually costs more than term life policies.
The most favored Cash Value insurance policy types in Texas are the Whole Life, Indexed Universal Life (IUL) and the Final Expense insurance.
TX Health Insurance
In Texas, health insurance covers medical expenses incurred due to an illness (physical or mental), injury, or disability. Some of the expenses include hospitalization costs, medicine costs, and doctor consultation fees. Health insurance also provides financial protection for the insured and their family. Health insurance is regulated by the government (state and federal) to ensure that all Texas residents have access to quality health care. As at late 2021, a total of 70 health insurance companies were registered and licensed to operate in Texas.
Texans can obtain health care plans through membership associations, a union or church, through the federal health insurance marketplace, through government-sponsored programs like Medicare and Medicaid, through their jobs (as part of employment benefits), buying directly from an insurance company, or from a trusted insurance agent, licensed in the state of Texas. Health care can be purchased either as group insurance or individual insurance.
Group insurance refers to insurance that employers provide for their employees and it includes other groups such as associations, unions, and churches. In this type of insurance, only members of the group are eligible for this coverage. In contrast, individual insurance in Texas is purchased directly from an insurance agent, company, or marketplace.
The Texas Health Insurance Marketplace offers access to the Affordable Care Act (ACA) insurance plans, which give an opportunity to the lower-income Texas residents to get quality health insurance at the government-subsidized (discounted) pricing.
Other forms of health insurance in Texas include:
- Short Term Insurance
- Hospital Indemnity
- Critical Illness
- Medicare
- Medicaid
- Medicare Advantage
TX Short-Term Health Insurance is a temporary and comprehensive health policy that provides coverage for a brief or preset period. This period may range from a month to a year but it can be renewed for three years. Short-term insurance is favored by Texans who seek health insurance primarily for emergency coverage. This type of insurance is usually much more affordable than the unsubsidized ACA coverage. Short-term health insurance is usually purchased along with hospital indemnity insurance, which covers the cost of the deductible in case of an emergency.
TX Hospital Indemnity Insurance is a type of supplemental health insurance that covers part of a person’s healthcare cost associated with a hospital stay. It is usually purchased as a supplement to major health insurance products, such as the Short-Term health insurance, helping with covering the high deductible gap.
Medicare is a health insurance program for people aged 65 years and above and it is administered by the federal government. However, under some conditions, Medicare may also extend to people below the age 65, who have received disability benefits for 24 months, who have end-stage renal disease, or Amyotrophic Lateral Sclerosis (ALS).
Medicaid, on the other hand, is a health insurance program administered jointly by the state and federal government for low-income individuals and households. As a social welfare program, it provides either very low or free premium healthcare coverage to eligible people. The main eligibility criterion is low income, there is no age limit.
TX Accident Insurance
Texas accident insurance is a supplemental insurance plan that provides coverage for hospital and medical care, death, disability, dismemberment, and injury from an accident. It is a limited medical expense policy, which only pays for losses caused by accidents, not sickness. It is supplemental because it provides the funds needed to offset extra out-of-pocket expenses not covered by major health insurance plans. These include the cost of hospital stay, medical examinations, emergency treatment, and feeding among others.
Accident insurance accounts for less than 1% of the Texas insurance market in terms of the amount of premium written.
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