Texas Life Insurance Policy Requirements

Texas law imposes specific requirements on life insurance policies sold in the state. These requirements protect consumers and ensure policy standardization.

Free Look Period

Texas provides a minimum free look period for life insurance:

During the free look period:

• Policyholder can review the policy
• Can return for full refund of premiums paid
• No questions asked, no penalty
• Clock starts when policy is delivered

Note: Many Texas insurers voluntarily offer longer free look periods (20-30 days), but 10 days is the minimum required by law.

Incontestability Clause

Texas requires a 2-year incontestability clause in all life insurance policies:

• After 2 years from issue, the insurer cannot contest the policy based on misstatements
• Exceptions: Fraud, non-payment of premiums
• The clause protects beneficiaries from claim denials
• Applies to the initial policy and any reinstatements

Texas Specific Rules

• Incontestability period begins from issue date
• If policy reinstated, new 2-year period may begin
• Does not protect against outright fraud in all cases

Suicide Clause

Texas limits the suicide exclusion:

• Suicide exclusion cannot exceed 2 years from policy issue
• After 2 years, death by suicide is covered
• If policy is reinstated, new 2-year period applies
• Clause must be prominently displayed

Insurable Interest

Texas requires insurable interest at the time of application:

Who Has Insurable Interest

Key Rules

• Must exist at time of application (not death)
• Cannot insure strangers (STOLI prohibited)
• Consent of insured required if adult
• Amount should be reasonable relative to interest

Beneficiary Provisions

Texas has specific beneficiary rules:

Beneficiary Rights

• Named beneficiary has no rights until death of insured
• Insured can change beneficiary unless irrevocable
• Community property rules may affect changes
• Divorce may revoke ex-spouse as beneficiary

Texas Family Code Impact

Under Texas law:

• Divorce automatically revokes ex-spouse as beneficiary (for policies after 9/1/2017)
• Exception if divorce decree specifically maintains beneficiary
• Applies to life insurance and retirement accounts

Unfair Discrimination

Texas prohibits unfair discrimination in life insurance:

Prohibited Factors

• Cannot discriminate based on race
• Cannot discriminate based on religion
• Cannot discriminate based on national origin
• Cannot unfairly discriminate based on physical disability

Permitted Factors

Insurers CAN consider:

• Age
• Health history
• Smoking status
• Occupation
• Hazardous activities
• Sex (actuarially justified)