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Purpose of Insurance in Texas

The purpose of insurance in Texas is to protect businesses and individuals from personal risks, liability risks, or property risks that may otherwise lead to larger losses. Insurance contracts function to allow you (the insured) to transfer your risks to the insurance provider, by paying a fee (premium) for this protection.

Insurance in Texas follows:

The 6 Basic Principles of Insurance:

  1. Utmost Good Faith is when you must provide honest and clear information, identifying important facts that relate to the applicable terms and conditions of the insurance policy. For example: If you were shopping for a health insurance policy and you forget to mention to the insurer that you smoke and later get lung cancer, at the point of making a claim, the insurance provider may not be obligated to pay for cancer related treatment due to concealed material facts.

  2. Proximate Cause is the determination of the primary cause of damage. For example, if a restaurant does not wash their dishes well and someone gets sick, the unsanitary conditions would be the proximate cause for the liability insurance claim.

  3. Insurable Interest is when buying an insurance plan, you must have a legal financial interest in the subject matter of the policy. For instance, you have an insurable interest if you are insuring your vehicle, home, individual assets, your health or life. However, if you try to insure your neighbor's home, you can not do it, without being able to exhibit insurable interest.

  4. Indemnity is when the insurance company provides monetary compensation that is meant to return you to the same monetary position you were in before the occurred loss. For example, if a house is destroyed in a fire, insurance is meant to provide coverage to clean up, rebuild the house, and replace the lost contents inside of it. This returns the insured to their monetary position before the loss (minus the deductible).

  5. Subrogation is what gives the insurance provider the option to demand pay from a third party answerable for causing loss to the insured. For example, in your auto insurance, if you get hit by another car, your insurer has a right of claim from a third party insurer that is covering the car that hit you.

  6. Contribution is an indemnity insurance principle that applies if at least two insurance providers insure the loss of the same item. In the event of a loss or damage, each insurer provides coverage to the extent of each separate coverage limits. The duplicating policies split the claim among them.

Why Do we Have Insurance in Texas?

We have insurance in Texas as a risk management strategy that covers you —the insured— in the event of losses outlined in your policy. Insurance can pay out the benefits both to you as the policy holder or to someone else, up to the limit of the policy. When the payout of the benefit is not made to the policyholder, it may be issued to a designated beneficiary. In a liability insurance case the insurance pays out to the wronged party on the policyholder's behalf.

All insurance entities in the state are strictly regulated under the Texas Insurance Laws.

What is Insured?

What is insured by insurance depends on the kind of insurance policy you wish to purchase. In Texas, what is insured by an insurance policy includes but is not restricted to your properties like home, car, and other personal belongings. You can likewise protect yourself as well as other people by buying a life insurance or health insurance policy. In addition to this, you can insure your businesses, your employees and other significant parts of your business. While every one of these may appear like an absolute necessity for you, it is fitting to talk with a state licensed insurance agent to help you find the insurance policy that best suits your requirements.

What is an Insurer?

An insurer, otherwise called an insurance carrier, is an organization that pays out the claims to the insured. The insurer furnishes the policyholder with financial protection in the event of a covered loss. The insurer designs the insurance policy and sets out the relevant terms, conditions, and exclusions that bind both parties, once the contract is signed. Note that the term "insurer" is also used interchangeably with an "insurance carrier". So, when you see the words: insurance carrier, it means the insurance company that sells policies like home, auto, and life insurance, to you.

What is an Insured?

In Texas, an insured is any person or organization that obtains insurance coverage from an insurance company (insurer). Insurance coverage remains intact while the insured makes premium payments to the insurer. Once the coverage ends or if the insured stops paying the premium, the insured stops being insured.

What is Insurance Policy?

In Texas, an insurance policy is an agreement between the insured and the insurance company. Commonly, different insurance policies, including life insurance, health insurance, property insurance, and casualty insurance, are accessible to Texans. Each type serves specific needs and features various plans.

What Does an Insurance Policy Consist of?

All insurance policies sold in Texas need to list the following information:

  • Insurance policy number

  • Duration of coverage

  • Cost of coverage for the mentioned duration

  • Deducible (if any)

  • What is covered

  • The amount of coverage for the insured item

  • Definition of terms

  • Exclusions to the coverage

What is Insurance Coverage?

Insurance coverage is the maximum monetary amount of risk that an insurance company agrees to pay out in the event of a claim. For instance, under an auto insurance policy, you have liability coverage, uninsured and underinsured motorists coverage, comprehensive coverage, collision coverage, etc. They all serve various needs - coverages.

Why Do you Need Insurance in Texas?

You need insurance to stay financially secure in case of any unfortunate events or life uncertainties that can easily drain your savings. . Such events include accidents, medical emergencies, damage to property, business lawsuits, death, and many more.

In order to decide what kind of insurance you need to buy, you must first figure out your specific insurance needs. The next step is the evaluation of options that fit those needs.

When you start analyzing your insurance needs, you may consider:

  • Present state of your health

  • Standard of living

  • Family size and number of children

  • Assets such as your businesses, home, cars, etc.

For example, irrespective of age, every Texan needs health insurance to decrease out-of-pocket costs during hospitalizations, routine clinical visits, health emergencies, maternity costs, surgeries, and critical illnesses (to name a few).

While Texas residents are not mandated at both federal and state levels to buy health insurance, every car on the road must be insured. As indicated by Texas Transportation Code § 601.053, drivers must show proof of financial responsibility (insurance card) to drive freely in the state. Infact, the Texas Department of Motor Vehicles (DMV) features an online database known as TexasSure for speedy confirmation and identification of drivers without the required auto liability insurance.

Another example of when insurance is required by law is applicable to Texas general contractors. Texas contractors are required to provide workers compensation insurance coverage to their employees while working for public employers. This way, if the contractor falls off the roof and gets injured on your property, their lost wages and medical bills get covered by the general contractor's insurance and not property owners'.

It is important to know that there are numerous insurance options in Texas and the most ideal decision relies on the individual's specific as well as most probable needs.

Speak to your trusted Texas-licensed insurance professional to discuss how your needs can be taken care of with the best coverage for the most affordable cost.

Is Insurance Really Necessary?

Yes, good and adequate insurance coverage is necessary to protect your family, property, business, and yourself from insured losses. The benefits of insurance to an individual depends on the individual's insurable needs. For instance, the state of Texas is threatened every year by hurricanes and tornadoes. Because of these adverse weather conditions, the Texas Department of Insurance and the Texas Department of Land Office advise residents to purchase and maintain homeowner and renter insurance policies as well as flood insurance coverages.

Texas has five main types of insurance groups that individuals or businesses can get coverage for:

HEALTH Insurance

Most Texans will need medical care at some point. Health insurance is necessary to cover these costs in addition to other benefits. Typically, modern insurance providers in Texas offer a wide range of health insurance policies. You can choose to purchase an individual or a family plan. Other coverages include group health insurance plans, dental insurance, Medicare, Medicaid, and Children Health Insurance Program (CHIP). Medicare and Medicaid are federally-sponsored coverages offering low or no-cost health insurance to eligible individuals. Before applying for these plans, it is recommended to do your research and also speak with a state-licensed insurance agent to know what is covered and what is not.

LIFE Insurance

Life insurance is especially beneficial to people with families and dependents. Texas life insurance coverages help the insured and/or their beneficiaries to pay for the funeral expenses, provide tax free retirement income, pay "death" tax for federal estate settlements, and much more. The most common life insurance coverages in Texas include:

  • Term life insurance

  • Final Expense (burial) insurance

  • Permanent life insurance

  • Group life insurance: offered by some employees as a special benefit to their employees.

Life insurance death benefits and cash value loans are not considered taxable income by the Internal Revenue Services.

PROPERTY Insurance

In Texas, property insurance provides coverage for material losses to property as a result of damage that may be caused by windstorm, lightning, fire, explosion, vandalism, explosions, malicious mischief, and riots. Most common types of property insurance are:

  • Homeowners, which insures damage to both structure of the home and personal properties inside of it, and

  • Auto - which covers your car, you, your passengers, and any damage you may do to others.

Travel, railway, marine and aviation insurance provides coverage to goods and freight. Commercial insurance is quite similar to homeowners insurance because it provides coverage against natural disasters, theft, public liability, as well as industry-related risks or equipment failures. Other types of property insurance include: condo insurance, mobile home insurance, landlord insurance, and flood insurance

COMMERCIAL Insurance

All businesses in Texas run the risk of unexpected losses caused by accidents, natural disasters, lawsuits, and many more. Having the correct business insurance policy is absolutely necessary to cover your possible losses and ensure that the business does not waste its own cash reserves on paying for repairs and you don't run out of business. Commercial insurance providers in Texas offer coverage for professional liability, commercial general liability, commercial property liability, legal liability, workers compensation, and many more.

The kind of business being run determines the level of liability coverage you need. Interested businesses can use the professional liability admitted carriers list to find licensed insurance companies in Texas, or consult with a state-licensed insurance agent for guidance. Note that in Texas, private companies are not under any obligation to have workers' compensation insurance. However, the Texas Department of Insurance Division of Workers' Compensation (DWC) requires an employer to provide their employees with workers' compensation when working with any government entity.

LIABILITY Insurance

In Texas, liability insurance can be purchased under different insurance policies, like homeowners and renters insurance, condo, all types of business insurances, and automobile insurance. Most Texans purchase liability coverage to protect themselves from incurring liability when other people sustain bodily injury or property damages. Texas is an "at-fault" car accident state, which means drivers will be financially responsible for any accident they cause. Texas drivers manage this responsibility by buying an automobile liability insurance policy that helps pay or repair damages they are financially liable for. Texas requires its drivers to have the minimum amount of liability coverage of at least $30,000 coverage for injuries per person, a total of $60,000 per accident, and $25,000 for property damage, also called the 30/60/25 coverage.

Due to a variety of available options and possible cost-savings configurations, insurance consumers are advised to seek the assistance of a trusted insurance professional licensed to sell the appropriate type of insurance in Texas.

Deductible vs. Premium

The premium and the deductible in Texas are out-of-pocket costs; however, they differ in how the costs are incurred and how they are utilized. While premium is a regular payment paid by you (the policyholder) to the insurer, to keep the policy active; you only pay the deductible when you file a claim. Health insurance policies are a bit different. Texas health insurance plans require payment of deductibles annually, where the insured must pay the deductible before the insurance provider starts paying for covered expenses. For instance, if you have a $1,000 deductible and $50,000 in medical bills, first you must pay the deductible of $1,000 before the insurance provider pays for the rest of the covered medical expenses. If your medical bills total $800, you pay the full $800 out of your pocket and will still need to cover the remaining $200 during the next medical visits, before the insurer's coverage kicks in.

Insurance premium and deductible are both costs an insured cannot avoid paying in Texas. However, unlike premium, the insured has specific control over choosing the amount of deductible. When selecting the deductible amount, the insured must consider their financial capability and what they can afford. Talk to a Texas-licensed insurance professional to find the right insurance coverage, for an affordable premium

What is a Deductible in Insurance?

Deductible in insurance is the monetary portion of risk you are willing to take on in case the risk occurs. The needs of every insured differ, and choosing the right deductible to pay comes down to your financials. The premium amount determines the deductibles; if the deductible is low, the premium is high, and if the premium is lower, it means a higher deductible.

What Does Deductible Mean in Texas?

A deductible is used to share risk between the insured and the insurance provider, and it ensures that the insured has a stake in any claim they make. In Texas, a deductible is the dollar amount or a percentage of the total amount of an insurance policy an insured pays before the insurance provider pays the claim.

An insured using the dollar (also known as Flat) amount deductible agrees to a specific amount be taken off (deducted) from the claim payment. For example, Texans must pay deductibles for automobile insurance coverage for collision, comprehensive, and uninsured/underinsured motorists. So if you have a collision claim of $10,000 in damages with a $500 deductible, the insurer deducts $500 from your claim amount and pays you the remaining $9,500.

Percentage deductibles are primarily used in a homeowners and renters insurance policy, and the deductible is sometimes calculated based on the value of the home insured. For instance, a property valued at $100,000 with a 2% deductible means the insurer will remove $2,000 from any claim payment, so if the claim is for $50,000 in damages, you will be paid $48,000. However, note that a special deductible may apply under the homeowners' and renters' insurance policies, because of the risk coverage. For instance, hurricane and wind/hail deductibles are special deductibles that mostly use percentage deductibles and are usually higher than other standard homeowners and renters policy deductibles. The insurance provider may require you to pay from 1% to 10% of the policy limits.

It is possible to have an insurance policy with no deductible, known as zero deductible. A zero deductible plan means that you do not need to pay anything before the insurance provider starts paying for your claims. However, zero deductibles come with higher associated premiums, because deductibles were designed for you as the insured to share the risk of a loss with the insurance provider. Buying zero deductible insurance coverage means the insurance provider is carrying the risk all alone. So in a Texas auto insurance policy, with collision coverage set at zero deductible, if you have a claim of $2,000, the insurance provider reimburses you the full $2,000.

PROs and CONs of an Insurance Deductible

Deductibles are an essential aspect of an insurance policy, and it plays an important role in determining the premium and how much risk an insured is willing to share with the insurer. The following are some of the pros and cons of deductibles in an insurance policy.

PROs:

  • Choosing a higher deductible lowers your monthly premium payment.

  • If you rarely use your health benefits in a health insurance policy, a higher deductible may help you save more money.

  • If you expect to use your health benefits extensively during the year, a lower deductible may help you save more money.

  • Your premium rate won't just increase after a covered loss because the insurance provider considers the cost and severity of your claim to determine if it will.

CONs:

  • You may spend more in the event of a claim if you delay in reporting your claim to your insurance provider, who may not pay for any other additional loss or damage caused by your delay.

  • High deductibles will not lower the premium significantly.

  • If you need surgery under your health insurance policy, you must settle the deductible before the insurance provider can pay your claim.

Deductible does not have to be set and forgotten forever. You can modify the deductible amount at any time, according to your current insurance needs. Always try to discuss your deductible options with a licensed insurance agent in Texas, who can explain the implications of your specific decision. Inquire with an agent for alternative strategies to cover the high deductible with a secondary low-cost insurance policy.

Do All Insurances Have Deductibles in Texas?

No, deductibles do not apply to all insurance policies or coverages in Texas. Insurance types that do not have a deductible:

  • Life insurance does not have deductibles, because the payout of the benefit is considered personal expenses. This means that the beneficiaries of life insurance policies do not have to pay deductibles before the insurance provider pays the death benefit.

  • Liability insurance does not have deductibles because the insurer will often pay the entire liability cost within the coverage limit. For example, when the insured has to pay for bodily injury and property damage after running into a car on the road.

What is a Premium in Insurance?

Premium in insurance is the fee paid by the insured (you) to the insurer (your insurance company) for providing the coverage. Regardless of the type of insurance, premium is a prerequisite to keep the policy alive.

What is Insurance Premium?

Insurance Premium is the money an insured pays to the insurance provider in exchange for coverage. The payment of premium in Texas may be monthly, quarterly, semi-annually, or annually. Some policies require payment of a deposit premium which is an estimated fee you pay in advance when the policy is issued and may be adjusted due to actual exposures to the risk. Under the health insurance plan, you may qualify for a premium tax credit which is a refundable credit that covers a portion of your premium if you purchased from a provider in the health insurance marketplace.

How is Insurance Premium Determined?

To determine the appropriate premium amount, the insurer relies on actuaries to do the work. Insurance actuaries use math and statistics in figuring out the premium you must pay, based on the types of policy you are purchasing, your location, and all the relevant risk factors at play:

  1. Life insurance - among other things, the insurance provider considers your personal information, including age, health, habits, smoking, alcohol intake, and medical records.

  2. Health insurance - most insureds in Texas get their health insurance coverage through their employer's group health plan, so the premium cost and options are set depending on the company's coverage and negotiated rates. However, any Texas resident may purchase a number of other health insurance products, where the premium is not locked in and can be chosen to match the exact needs of each insured. In that case, factors like what kind of insurance is available, the number of companies competing on the exchange, and the number of people buying insurance through the exchange will be considered. The insurance provider will also pay attention to other factors like your age and whether it covers dependents.

  3. Auto insurance - when buying automobile insurance in Texas, the insurance provider will look at certain factors like your driving records, traffic citations, license suspension, and driving accidents accessible at the Texas Department of Motor Vehicles. For instance, a driver with a clean record will usually get a substantially lower premium than a driver with a record filled with accidents and violations. Note that the insurance provider may re-evaluate your rates after making a claim or driving infractions that are your fault, unless you get a claim forgiveness feature added to your policy.

  4. Homeowners, Renters, and Commercial insurance- the insurance provider uses the property's age, size, value, location, and other relevant factors. For instance, homes and businesses located in the areas susceptible to flooding or tornadoes tend to carry higher premiums.

Other factors the provider considers may include the amount of coverage the insured needs, the likelihood of making a claim, the history of claims, the deductible amount, type of business, and insurance history. Note that even after the policy terms have been determined, the premium may increase due to certain factors, like submitting a claim during the policy term or increasing the risk associated with the policy.

How Does Deductible Affect Premiums?

When choosing insurance coverage in Texas, there are three things an individual or business must keep in mind:

  • Amount of needed coverage,

  • Desired deductible, and

  • Affordability of the premium.

The premium the insured agrees to pay directly impacts the amount of the deductible. Where an insured has a low monthly premium, the deductible will be higher, and where they have a high monthly premium, the deductible will be lower. When deciding the deductible, the insured must consider how much they can afford when the loss occurs and how often they may need to use this insurance. This is especially important for a health insurance policy.

Choosing a plan under a health insurance policy requires you to consider the premium and the deductible percentage you are willing to take on. You can take the following into perspective when determining your premium and deductible plan:

  • You might need to use your insurance more often if you have small children or a family member with a disability or other health challenges requiring regular doctor visits. If this matches your situation, you may want to consider a plan with a higher premium and lower deductible.

  • You might not need to use your insurance often if you rarely visit the doctor. If this sounds like you, then you may want to consider a plan with a lower premium and higher deductible.

So, when deciding on the deductible and premium, an insured has to consider how they want to use the insurance benefits. If it is unlikely that the insurance will be used often, you can consider taking on a lower premium and higher deductible. However, if there is reliance on insurance, for instance, health plan, the insured may consider higher monthly premiums and lower deductibles.

How Do you Pay Insurance Premiums in Texas?

When an insured agrees to pay a certain amount of premium for the coverage to be provided by the insurer, they have to know how to pay their premium. Insurance premiums in Texas can be paid the following ways under the different policies:

Health insurance: an insured pays an insurance premium monthly for a health insurance plan, whether or not the coverage is used. Note that you are solely responsible for paying your premium except for when you qualify for federal assistance or if your employer is paying a portion of it.

Auto insurance: insurance providers allow an insured to choose how the premium will be paid. The most common options are monthly, twice a year, or annually. Note that if you pay an annual lump sum, you may get a discount. However, an at-risk driver may be required to pay up the entire premium in full for the term upfront.

Commercial insurance: insured have the option of paying premium in full at the start of the policy or as recurring monthly payments. Various business owners resort to premium financing companies, who pay the premium as a one-time payment, and they in turn, pay the premium financing company in monthly installments. When entering into a contract with the premium financing company, you must make a down payment on your insurance which is usually set at 25%. Note that these premium financing companies are not fully regulated in the country, so they have the right to set their interest rates which are often between 10% to 20%.

Life insurance: The insurance providers have several modes of paying premium in Texas. Insurance premiums can be paid on a monthly, quarterly, or annual installment basis. There is also the option of paying premiums through premium financing commonly used by high net worth individuals. It involves you taking out a third-party loan to pay for your life insurance plan premium, where the loan is repaid using the proceeds of the death benefit.

Homeowners insurance: Insurance premiums are paid in two ways:

  • Per month or per year to the insurance provider, based on your preference

  • Paying monthly through mortgage payment if the homeowner's plan premium is included in the mortgage payment. Usually, this requires an escrow account where a portion of the mortgage is set aside to pay for a premium.

What is Insurance Rate?

Insurance rate is the exact amount of money an insured pays to receive a specific amount of coverage for losses and expenses. Insurance companies use the rate charged to earn profit. The rate used in the different types of insurance policy varies; for instance, in a health insurance policy it is known as the base rate and when the policyholder pays the premium for the coverage, the premium is calculated from the base rate. Similarly, in homeowners and renter insurance policies, the rate is called the exposure unit, which is the cost the insured pays the insurer for a particular quantity of property coverage for a time frame, usually a month or annually.

What is the difference between premium and rate in insurance? Premium is the actual dollar amount you pay to the insurance company to provide the coverage. The rate is the cost of a specific policy's benefit usually adjusted to risk characteristics like smoking, age, family size, business type, etc. of the particular insurance applicant.

What is Insurance Quote?

An insurance quote is the estimated cost given by the insurance provider to the insured to give an idea of what the particular coverage may cost. Often, interested parties may ask various insurers for their quotes through agents or online to enable you to compare prices and coverage options at no cost and no commitment. To calculate a quote, the insurer considers risk level, type of coverage, and other relevant facts provided. You may be wondering if a quote is what you pay as a premium; the answer is no. This is because a quote is not an offer to be treated as purchase of a policy, and it has no binding effects like premium does in an insurance plan.

Make sure to discuss your insurance needs with a qualified insurance professional licensed in Texas, who has a variety of products and insurers to quote and compare. Using an agent does not cost the insured anything extra. Always compare several quotes and ask your agent a lot of questions.