Life Insurance Texas | Term Life vs. Permanent Life

Why do I need life insurance?

Whether you live in Houston, Dallas, Austin, San Antonio, or any of our great small Texas cities or small towns, a life insurance policy provides protection for your family, business, or anyone you provide financial support for by providing cash to pay present and future expenses when you die- tax free. Your life insurance policy would help cover daily living expenses, pay off your mortgage and other outstanding loans, fund tuition for your children, and ensure that your loved ones are not saddled with debt. Ask yourself this one question, would your spouse and children still enjoy their current standard of living if you passed away?

Your family will not be forced to sell your home and will be able to continue the standard of living that was provided when you were living. Your beneficiaries will not have to pay federal income taxes on the money they receive from a life insurance policy.

What is the best life insurance policy to have in Texas?

The best life insurance policy to have is the one you can afford and is in force when you die! Avoid any agent that tells you his one type of life insurance policy is the best for all situations! In many circumstances, there is no such thing!

How much life insurance do I need?

People have different needs when it comes to life insurance. We can help you determine how much life insurance you and your family need based on your financial responsibilities, income and what fits in your budget.

For many people, a life insurance policy should have a death benefit of 10 times your annual income. Your need could be higher or lower depending on your situation. Please consider other expenses such as day care, tuition, mortgage, medical bills, funerals, family relocation, and retirement costs when calculating your life insurance needs. If your life insurance policy is for business needs such as key man protection, buy sell agreements and/or business continuation plans, you will need to complete a full revenue expense analysis to determine how much insurance you will need.

Types of Life Insurance in Texas

Term Life Insurance

Term Life Insurance provides a death benefit for a fixed number of years. This type of insurance can be used for temporary financial needs that extend over a certain period of time, such as mortgages, tuition, and other loans. For example, a 10 year term policy only pays the death benefit if you die within the 10 year period.

Terms are as short as 1 year and as long as 35 years. A few companies even have a 40 year term. Some term policies are available with return of premium or ROP riders, which can refund all or most of the premiums paid into the policy at the end of the term.

Advantages

Term life offers the most death benefit for the money! Return of premium option can provide a tax free refund of all premiums paid if policy is kept the entire term period. Most policies have a guaranteed conversion option to permanent insurance, regardless of your health status.

Disadvantages

Premiums are only guaranteed for a specific period. Many policies say they are guaranteed renewable to age 95. This may be true, but the renewal rates after your initial term period can be at least 10 times higher than your original term! You may not qualify for a new term policy at older ages with another company due your then current health status. While the cost of term life insurance is lower than other types of insurance, term life policies DO NOT provide permanent coverage for the rest of your life, and also DO NOT build cash value.

Whole Life Insurance

Whole Life Insurance provides a fixed amount of coverage for the rest of your life, which never expires as long as premiums are paid. Premiums never increase and your coverage never decreases. A portion of your premiums are invested by the insurance company. These policies are "permanent insurance" and build guaranteed cash values at a fixed rate.

Advantages

Guaranteed cash values with lifetime coverage. You have the option to create a paid up policy at an earlier age if desired. Additional death benefit is possible with dividends depending on the insurer's performance.

Disadvantages

Whole life is the most expensive type of policy for the money when death benefits are compared with term or universal life! Most whole life policies must be kept for many years to build reasonable cash values.

Universal Life

These policies are another type of "permanent insurance" similar to whole life, in which your death benefit may be guaranteed beyond what term policies can offer, and some cash values may accrue. Universal life policies offer the potential for increased cash values that are linked to stocks, bonds and mutual funds, but contain many risks and should not be recommended to most individuals.

Advantages

Universal Life Insurance guaranteed death benefits of whole life, but at lower premiums than whole life. These policies are the lowest cost form of lifetime protection available. No lapse options are available to guarantee coverage and premiums for your entire life, even if the policy contains no cash value. Your premiums and death benefit guarantees can be adjusted if needed. You have the option to create a paid up policy at an earlier age if desired.

Disadvantages

Most No lapse universal life policies build very little or no cash values. Cash values can fluctuate in some policies, where increased premiums are needed or the coverage may lapse before your death. Important information on permanent insurance:

Please keep in mind, with all permanent life insurance policies (whole and universal life), the cash value is different from the death benefit. Cash value is the amount available if you surrender (cancel) your policy before death. Surrender charges can last as much as 15-20 years in some policies. The death benefit is the money that will be paid to your beneficiary if you die.

The beneficiary does not receive the cash value in addition to the death benefit of your policy. After cash value has grown inside the policy (this can take several years).

Consider the Following

1. You can borrow from the insurer using your cash value as collateral. Loans are available with no credit required. If you do not repay the loan (including interest), it will reduce the amount paid to your beneficiaries after your death. Make certain that the loans are structured properly. You may have tax consequences if the policy lapses while you have outstanding loans.
2. You can use the cash value to pay your premiums or to buy more coverage (sometimes called paid up additions).
3. You can exchange the policy by using the cash value for an annuity that will provide income for life or a specified period.
4. You can cancel (surrender) the policy and receive the cash value in a lump sum. You only pay taxes on the value that exceeds what you have paid in premiums.
5. Cash value insurance is designed to be kept for the long term.
6. Canceling a cash value policy after only a few years can be expensive.

Purchasing Tips for Life Insurance

1. Take your time. On the other hand, don't put off an important decision that would protect your family. Make sure you fully understand any policy you are considering and that you are comfortable with the company and product.
2. When applying for life insurance, it is very important to be ready for the medical exam. Your medical exam is similar when you go to your doctor for your annual physical.
3. After you have purchased an insurance policy, keep in mind that you may have a "free-look" period usually 10 days after you receive the policy during which you can change your mind. During that period, read your policy carefully. If you decide not to keep the policy, the company will cancel the policy and give you an appropriate refund. Review the copy of your application contained in your policy. Promptly notify your agent or the company of any errors or missing information.
4. Review your policy periodically or when your situation changes to be sure your coverage is adequate.

Here are some additional items to consider when you are selecting a term or permanent policy:

1. What happens if I fail to make the required payments? If you miss a premium payment, you typically have a 30- or 31-day grace period during which you can pay the premium with no interest charged. After that, the company can, with your authorization, draw from a permanent policy's cash surrender value to keep that policy in force as long as there is sufficient cash surrender value. In some flexible premium policies, premiums may be reduced or skipped as long as sufficient cash surrender values remain in the policy. However, this will result in lower cash surrender values.
2. What if I become disabled? Provisions or riders that provide additional benefits can be added to a policy. One such rider is a "waiver of premium" for disability. With this rider, if you become totally disabled for a specified period of time, you do not have to pay premiums for the duration of the disability.

Additional Riders

"Accidental death benefit", provides for an additional benefit in case of death as a result of an accident. This rider, if available, would require additional premium. Availability and specifics varies by carrier and state.

"Accelerated benefits", also known as "living benefits." This rider allows you, under certain circumstances, to receive the proceeds of your life insurance policy before you die. Such circumstances include terminal or catastrophic illness, the need for long-term care or confinement to a nursing home. This rider, if available, may require additional premium. Availability and specifics varies by carrier and state.

"Child rider", provides insurance for all your children, usually ranges from $1,000 to $20,000 of death benefit. This rider, if available, would require additional premium. Availability and specifics varies by carrier and state.

Selecting a life insurance company in Texas

Your Life Insurance policy should contain an illustration. A policy illustration shows financial projections for each year you have the policy such as the premium schedule, cash values, and death benefits.

With a term life policy, the projections extend to the end of the term. With a cash value policy, projections can extend up to your 120th birthday! Your actual costs and benefits could be higher or lower than those in the illustration because they may be based on non-guaranteed amounts and depend on the future financial performance of the policy.

When looking at guaranteed amounts, the insurance company will honor them regardless of policy performance. The policy illustration can be complicated, so please ask us for a review of any life insurance policy you have currently or are considering purchasing.

Life insurance companies are required by law to maintain reserves to guarantee that they can meet obligations to their policyholders.

Financial ratings are available at:

Standard & Poor's: www.standardandpoors.com
A.M. Best Company: www.ambest.com
Fitch Ratings: www.fitchratings.com
Moody's Investor Services: www.moodys.com

Check with the Texas Department of Insurance to make sure the company is licensed to offer a particular policy.

What to look for in your life insurance policy?

Your Texas Life Insurance policy should contain an illustration. A policy illustration shows financial projections for each year you have the policy such as the premium schedule, cash values, and death benefits.

With a term life policy, the projections extend to the end of the term. With a cash value policy, projections can extend up to your 120th birthday! Your actual costs and benefits could be higher or lower than those in the illustration because they may be based on non-guaranteed amounts and depend on the future financial performance of the policy.

When looking at guaranteed amounts, the insurance company will honor them regardless of policy performance. The policy illustration can be complicated, so please ask us for a review of any life insurance policy you have currently or are considering purchasing.