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Understanding Life Insurance

Planning for Loss of Health

This article provides information about who needs life insurance and types of insurance.


Life insurance provides money to your family after you die to help them pay for burial costs, living expenses, bills, and education. Some types of policies can also provide benefits while you are still alive through cash values and accelerated benefits.

Not everyone needs life insurance. To decide whether life insurance is a good choice for you, consider your age, your assets, and whether anyone depends on you for support.

Before you buy insurance, make sure the agent and company are licensed to sell insurance. To learn whether an agent or company is licensed, call the Texas Department of Insurance Consumer Help Line at 800-252-3439. You may also view agent and company information using the Agent Lookup or Company Lookup features on the TDI website.

Life insurance basics

People buy life insurance to ensure that their beneficiaries have enough money to maintain their standard of living after the policyholder dies. Beneficiaries are the people you designate to get the money from the life insurance policy after you die. This money is called a death benefit and is typically tax free.

You may designate one or more beneficiaries. If you designate more than one, you must decide how to divide the money. You may also choose a secondary or contingent beneficiary to receive the money if the primary beneficiary dies before you.

Life insurance isn't an investment. An investment is a financial risk -- you might make money but you also might lose some or all of your money. Life insurance pays a guaranteed death benefit.

Some types of life insurance like whole life, universal life, and variable life, can build a cash value that you might be able to use for retirement income. Agents and companies may not refer to life insurance as an investment or retirement income source. If an agent or company tries to sell you a life insurance policy as a good investment, be wary. Also, don't confuse life insurance with annuities. People often buy annuities for retirement because they can provide steady income over a long period.

Insurance companies use a process called underwriting to decide whether to sell life insurance to someone and how much to charge them.

The company will consider several factors to decide the premium to charge. Those include:

  • your age
  • gender
  • medical condition
  • whether you use tobacco
  • your hobbies and occupation.

Younger people and people who are in good health, don't use tobacco, and don't have a hazardous hobby or job will have lower premiums because the company expects that these policyholders will live longer. People who are older, have health problems, use tobacco, or have a hazardous hobby or job will pay more.

Companies may charge you a higher premium or decide not to sell you a policy because of your potential risk. If a company won't sell you a policy, keep shopping. Underwriting guidelines vary by company. You might be able to find coverage with another company.

Who needs life insurance?

People who have others who rely on them financially should consider life insurance. You might want to have enough insurance to pay your debts and to provide your beneficiaries with some income. Consider your circumstances and the quality of life you want your dependents to have when deciding whether to buy life insurance and how much you should buy.

Ask yourself the following questions to help you decide if life insurance is right for you:

  • Do you need to replace your income to provide for your spouse, children, or other family members?
  • Do you have debt, such as a mortgage, credit cards, student loans, or other debt?
  • Do you want to help your children pay for college?
  • Will your family need money to pay for your funeral costs or the cost to settle your estate?
  • Do you have a large estate that could be subject to state or federal estate taxes?
  • If you answered yes to any of these questions, you should consider buying life insurance.

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