Lesson 1: Life Insurance Basics
**What is Life Insurance?**
- A contract between a person and an insurance company.
- The person pays premiums, and in return, the company agrees to pay a death benefit to the beneficiary when the insured person dies.
**Why People Buy Life Insurance:**
- To protect family income
- To pay off debts like a mortgage
- To cover funeral costs
- To leave an inheritance
**3 Main Parties in a Life Insurance Contract:**
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Insured: The person whose life is covered
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Policyowner: The person who buys and controls the policy
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Beneficiary: The person who gets the money when the insured dies
**Key Terms:**
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Premium: Payment to keep the policy active
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Death Benefit: The money paid when the insured dies
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Underwriting: The process of evaluating risk
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Insurable Interest: A financial or emotional relationship with the insured
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Cash Value: A savings part of permanent life insurance (term life has none)
**Types of Life Insurance:**
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Term Life: Lasts a set number of years, cheaper, no cash value
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Permanent Life: Lasts for life, has cash value
**Texas-Specific Rules:**
- Regulated by the Texas Department of Insurance (TDI)
- Required disclosures at sale
- Free look period: 10 days for full refund
Flashcards – Lesson 1
Q1: What is life insurance?
A1: A contract where the insurer pays a death benefit to a beneficiary when the insured dies, in exchange for premiums.
Q2: Who receives the death benefit?
A2: The beneficiary.
Q3: Who owns the life insurance policy?
A3: The policyowner.
Q4: What is a premium?
A4: The payment made to keep a policy active.
Q5: What is underwriting?
A5: The process of evaluating risk to issue a policy.
Q6: What is insurable interest?
A6: A financial or emotional relationship with the insured.
Q7: Which type of insurance has no cash value?
A7: Term life insurance.
Q8: Which type has a savings component?
A8: Permanent life insurance.
Q9: What agency regulates insurance in Texas?
A9: Texas Department of Insurance (TDI).
Q10: What is the free look period in Texas?
A10: 10 days to cancel for a full refund.