You pay the insurance company a premium. If you die while the policy is active, the company pays money to the people you named, called beneficiaries.
You can buy life insurance from an insurance company, an agent, or a broker. A broker can sell policies from more than one company. You pay a premium to keep the policy going.
When you die, the company pays your beneficiary. You can name more than one person. They can use the money for bills, living costs, debts, college, or anything else.
Before it sells you a policy, the company looks at your risk. This is called underwriting. It may ask about your health, job, and habits. You may also take a medical exam.
There are two main types. Term life covers you for a set number of years. Permanent life can last your whole life, and some kinds build cash value you can borrow from.
If you miss a payment, most policies give you a 31 day grace period. If you still do not pay, the policy can lapse. Then it will not pay when you die.
- Premium: the money you pay for the policy
- Death benefit: the money paid when you die
- Beneficiary: the person who gets the money
- Underwriting: how the company decides your price
More questions
Do beneficiaries pay income tax on the money?
Usually not. The Texas Department of Insurance says beneficiaries rarely pay income or inheritance taxes on a death benefit.
How fast does the company pay?
In Texas, companies must pay within two months after they get proof of death and confirm the beneficiary. It can take longer if the death is in the first two years.
Can the company refuse to pay?
In the first two years, the company can review your application. If you gave wrong information, it can deny the claim and return the premiums.
Words to know
- Agent
- A licensed person who sells insurance for one or more companies. Agents are paid commission.
- Beneficiary
- The person you name to get the death benefit when you die. You can name more than one.
- Broker
- A licensed person who works for you and shops several companies for options. Brokers are also paid commission.
- Cash value
- The savings part of a permanent policy. It grows over time and can be used for loans, cash, or to pay premiums.
- Grace period
- Extra time after your premium is due to pay without losing coverage. Most policies give 31 days.
- Lapse
- When your policy ends because you did not pay the premium in time. Your beneficiaries will not get the death benefit.
