For most people who own permanent life insurance, policy maturity is not something to worry about, especially if your policy is scheduled to mature at what would be your 121st birthday. But for people with older existing policies, it can be an issue. Fortunately, maturity extension riders (MERs) can keep a policy in force once that date passes, but they may need to be elected years in advance, depending on the policy. This is one reason it’s important to be aware of your options well before your policy’s maturity date arrives.
Key Takeaways
- Only permanent life insurance policies have scheduled “maturity dates.”
- When a policy matures, coverage terminates and the maturity value, which may be the face amount, is distributed to the policy owner.
- The amount the policy owner receives is subject to income tax.
- Maturity extension riders can delay the policy maturity date.
- The year a life insurance policy matures depends largely on when it was issued.
What Is a Life Insurance Maturity Date?
When a permanent life insurance policy matures, the “maturity value” of the policy is paid out to the policy owner and coverage ends. Maturity dates are based on the age of the insured person and vary, depending on when the policy was issued. The maturity value to be paid out is specified in the contract. For example, it may be equal to the cash value of the policy or the face amount.
The maturity date of a life insurance policy is important and can be a problem because:
- A portion of the cash value paid out, which may be a very large amount, is taxable to the policy owner.
- Life insurance coverage for the insured ends prior to death, leaving beneficiaries with less of or without an inheritance.
The age of maturity on a cash value life insurance policy is based on the age of the insured person. It typically ranges from 95 to 121 years, depending on when the policy was issued.
Types of Life Insurance That Mature
There are two main types of life insurance. Term insurance provides pure death benefit protection and does not build cash value. It does not have a maturity date whereupon the cash value automatically “endows” (is paid out) to the policy owner.
Unlike term policies, permanent policies build up a tax-deferred cash value over time that you can access via withdrawals, loans, or by surrendering the policy. The cash value is designed to offset the rising cost of insurance as the insured person ages. Permanent life insurance is more expensive than term and is designed to last until the death of the insured.
There are four types of permanent, or “cash value,” policies:
- Whole life insurance
- Universal life insurance
- Variable life insurance
- Indexed life insurance
Regardless of the type, permanent life insurance policies have a policy maturity date, or end date, which is expected to be after the insured person dies. It may be when the insured person reaches 95 years of age or up to 121. The exact year depends on which Commissioners Standard Ordinary Mortality (CSO) table was used, which depends, in part, on when the policy was issued.
CSO Tables
CSO tables are the standard by which average life expectancy is measured across various demographics, such as smokers and non-smokers, and are used in underwriting life insurance policies. Policies are designed to mature at the end of the particular CSO table used.
Note
As the CSO tables have been updated over the decades by the Society of Actuaries, the maturity dates for permanent life insurance policies have gradually increased.
For example, a policy issued using the 2017 CSO tables could mature when the insured person reaches 121—which is an age few people live beyond. However, if the policy was issued using the 1980 CSO tables, the policy might mature when the insured person is 99 years old. This could pose a problem for an insured person about to turn 100. When the policy matures and pays the maturity value, not only will they lose their life insurance coverage, but they’ll be taxed on any amount that exceeds their basis in the contract (this is usually the amount of money paid into the policy).
What Happens When Life Insurance Matures?
Given enough time, permanent policies eventually mature. When this happens, the maturity value—which may be equal to the cash value that’s accumulated or equal to the face amount—is paid out and the policy ends. Any amount that exceeds the amount invested in the contract, such as premiums paid, may be taxed as income.
Note
When policy proceeds are distributed as a death benefit—such as when the insured person dies, or in some cases, if an accelerated death benefit rider is exercised—they are tax-free.
For example, suppose George purchased a life insurance policy in the 1980s that matures when he turns 100. If the face amount of the policy is $100,000 and the face amount is equal to the maturity value, he’ll receive $100,000 when he’s 100 years old (and his coverage will end). If his basis in the life insurance policy is $75,000, he’ll have to pay income tax on $25,000.
Maturity Date Extension Rider
However, George may be able to buy a maturity date extension rider (MER) that keeps the policy from maturing until he elects to terminate the rider or until his death.
Some riders need to be elected years before the maturity date, however, so it’s important to be aware of when that date is. On other policies, your insurer may automatically extend the maturity date when it arrives, even if the policyholder didn’t request the extension.
What It Means for You
If you expect your life insurance policy to mature prior to your death, reach out to the insurer for more information.
- Find out if your policy has a MER that will go into effect automatically or that you can elect, and how much it costs.
- Ask how much the maturity value will be (this is the amount you’ll receive from the policy).
- Ask what your basis is in the contract (this is the amount of the distribution that won’t be taxable).
- Find out if there are other items to be aware of that will impact the amount you’ll receive, such as any outstanding policy loans.
- Ask about any deadlines, such as to elect an MER, and next steps.
Once you’ve contacted the insurance company, share your findings with trusted family members or friends and anyone who helps handle your affairs, such as your lawyer or financial planner. It’s possible that you may be alive when your policy matures but without the mental capacity to make important decisions.
Note
If you’re inquiring about a life insurance policy that does not belong to you, such as a parent’s policy, the insurer will need the policyholder’s permission before talking to you.
If you are looking to buy a new permanent life insurance policy, ask when the policy is scheduled to mature. If it would mature before you turn 121, ask why.
