How Life Insurance Works in TDI


This article provides information on who needs life insurance, types of insurance, and other information. This article was provided by the Texas Department of Insurance.


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

Not all people need life insurance. To determine if purchasing life insurance is a good option for you, consider your age, your assets, and whether anyone is financially dependent on you for their support.

Before you buy insurance, make sure the agent and company are licensed to sell insurance. To find out if an agent or company is licensed, -call the Consumer Help Line at 1-800-252-3439. You can also view agent and company information using the Agent Lookup or Company Lookup features on the TDI website.

Basic Information about Life Insurance

People buy life insurance to ensure that their beneficiaries have enough money to maintain their lifestyle after the insured person dies. Beneficiaries are the people you designate to receive the life policy money after you die. This money is known as a death benefit and is generally tax-free.

You may designate one or more beneficiaries. If you designate more than one, you have to decide how you will divide the money. You can also select a second beneficiary, or contingent beneficiary, to receive the money if the primary beneficiary dies before you. Life insurance is not an investment. An investment is a financial risk, as you could earn money but you could also lose some or all of your money. Life insurance pays a guaranteed death benefit.

Some types of life insurance, such as ordinary life, universal life, and variable life, can build cash value, which you may be able to use as retirement income. Agents and companies may not refer to life insurance as an investment or as a source of retirement income. If an agent or company tries to sell you a life insurance policy as a good investment, be careful. Also, don’t confuse life insurance with annuities. People often buy annuities for their retirement because they can provide a fixed income for a long period of time.

Insurance companies use a process called underwriting to decide whether to sell someone life insurance and what prices to charge for insurance premiums.

The company will consider several factors in deciding how much to charge for the insurance premium. These include:

  • your age,
  • sex,
  • medical condition,
  • if you smoke, and
  • your hobbies and your occupation.

Younger applicants and people who are in good health, don’t smoke, and don’t have dangerous hobbies or occupations will have lower premiums, as the company expects these policyholders to live longer. Applicants who are older, have health problems, smoke, or have dangerous hobbies or occupations will pay more.

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

Who Needs Life Insurance?

Those with people who are financially dependent on them should consider getting it. You may want to have insurance that is enough to pay off your debts and to provide your beneficiaries with some income. Consider your circumstances and the kind of quality of life you want your dependents to have when deciding whether or not to buy life insurance and how much to buy.

To help you decide if it is right for you, ask yourself the following questions:

  • Do you need to replace your income so you can support your spouse, children, or other family members?
  • Do you have debt, such as mortgages, credit cards, student loans, or other debt?
  • Do you want to help your children pay for college?
  • Will your family members need money to pay for your funeral expenses or the cost of settling your estate?
  • Do you have a large amount of assets that may be subject to state or federal taxes?

If you answered yes to any of these questions, you should consider purchasing it.


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