Life insurance in Texas

Term or permanent

Term life covers a set period, such as 20 or 30 years, and is usually the most affordable way to protect a family while children are young or a mortgage is outstanding. Permanent life (whole or universal) lasts for life and can build cash value, at a higher premium. For a side-by-side comparison, see term vs. whole life insurance.

The Texas guaranty association

If a life insurer licensed in Texas fails, the state's life and health guaranty association steps in to protect policyholders up to limits set by law. NOLHGA lists the standard protections as $300,000 in life insurance death benefits, $100,000 in cash surrender value and $250,000 in annuity benefits. Texas isn't listed as an exception, but limits are set by state law, so confirm with the association.

Choosing an amount

A common approach adds up income your family would need to replace, debts such as the mortgage, future costs such as education, and final expenses, then subtracts savings and existing coverage. Our life insurance calculators walk through it. If the mortgage is your main concern, see Texas mortgage protection insurance.

Protections built into every Texas life policy

Texas Insurance Code Chapter 1101 sets several terms a life insurance policy must include. They don't make one policy better than another, but they tell you what you can count on:

• A grace period of at least one month for each premium after the first, during which the policy stays in force (Sec. 1101.005). TDI says most policies give 31 days.
• Incontestability: once the policy has been in force for two years during the insured's lifetime, the insurer can't contest it except for nonpayment (Sec. 1101.006).
• Settlement within two months after the insurer receives proof of death and proof of the claimant's right to the money (Sec. 1101.011).

For more, see your rights as a Texas insurance consumer.

Your free-look period

TDI's life insurance guide says Texas policies have a free-look period of at least 10 to 20 days, during which you can cancel for any reason and get a full refund. The exact number of days is printed in your policy, and the clock starts when the policy is delivered. Use that window to read the whole contract, check that the beneficiaries and amounts are right, and compare it with the quote you were given. Learn more about how free-look periods work.

Replacing an existing policy

If you already own life insurance or an annuity, Texas Insurance Code Chapter 1114 adds safeguards before you replace it. The agent must have you sign a statement about existing coverage and, if you have any, read you a state-approved replacement notice listing each policy that will be replaced or used to fund the new one. The replacing insurer must tell you that you can return the new policy within 30 days of delivery for a full refund of premiums. See how policy replacement works.

TDI's guide reminds readers that a replacement starts a new contestable period and may trigger surrender charges, and that it's illegal for an agent to replace a policy just to earn a new commission. If you think that happened, you can file a complaint with TDI. Keep the old policy in force until the new one is issued and the free look has passed.

What to ask before you sign

Bring these questions to any quote conversation:

• Is this policy convertible to permanent coverage, and until what age?
• What happens if I miss a payment after the grace period: is there any nonforfeiture value?
• Who will be the owner, and who are the primary and contingent beneficiaries?
• If I'm married, does Texas community property law affect who I should name? (See our community property guide.)
• Am I replacing anything? If so, what do I lose by surrendering the old policy?