For most types of life insurance, the policy has a set end date known as the maturity date. When a life insurance policy reaches maturity, the policy ends and a payout is made to the policy owner. But what exactly happens at maturity, and what should you expect?
Below we’ll look at how maturity works for different policy types, when policies mature, the payout options at maturity, and what to do if your policy is approaching its maturity date.
Overview of Life Insurance Policy Maturity
Maturity refers to a life insurance policy reaching its predetermined end date, at which point the contract terminates. This date is set when the policy is first issued.
Here’s an overview of how maturity works for different policy types:
Term life insurance – Term policies provide temporary coverage and do not have cash value buildup. They do not have maturity dates and simply end when the term expires.
Permanent life insurance – Policies like whole life and universal life have maturity dates ranging from age 95 to 121. At maturity, the cash value is paid out.
Endowment policies – These permanent policies pay out the death benefit amount if the insured dies or the face amount at maturity.
So maturity does not impact term insurance. But permanent policies and endowments are designed to pay out the accumulated savings on the maturity date.
When Do Life Insurance Policies Mature?
The maturity date for permanent life insurance and endowment policies is based on the age of the insured and mortality tables. The exact age of maturity depends on when the policy was issued:
Policies issued decades ago often mature around age 95-99.
More recently issued policies may mature at age 121.
This is because mortality tables like CSO (Commissioners Standard Ordinary) have increased projected life expectancy over time. Insurance companies have in turn pushed out maturity ages on newer permanent policies.
While some policies mature at a set age, others mature after a certain time period, such as 30 years. But payout at 95-121 years is most common.
Payout Options at Maturity
When a permanent life insurance policy matures, the policy owner will receive one of the following:
Cash value – The accumulated savings in the policy cash value is paid out. This is taxable income above the cost basis.
Face amount – The full death benefit can be paid out at maturity on some policies.
For endowment policies, the face amount is paid out to the policy owner if the insured is still living at maturity.
So at maturity, the payout is usually the cash value or death benefit amount. Term policies do not have cash value buildup or a maturity provision.
What to Do If Your Policy Is Nearing Maturity
Beneficiaries will lose coverage if your permanent policy matures before the insured’s death. There are a few options if your policy is approaching its maturity date:
Maturity extension rider – This rider postpones the maturity date, usually in yearly increments. It must be added well before maturity.
Purchase a new policy – You may be able to get a new permanent or term policy in your older age.
Reduce face amount – Inquire if you can reduce the death benefit to lower premiums and delay maturity.
Withdraw/borrow cash value – This reduces the amount subject to income tax at maturity.
If you have an endowment policy nearing maturity, you can also inquire about extending the endowment period.
What Happens When Term Life Insurance Matures?
Term life insurance provides coverage for a set period, such as 10 or 30 years. These policies do not have cash value or maturity provisions. When the term expires, coverage simply ends – there is no cash payout.
Some scenarios at term policy expiration:
If the insured died during the term, the death benefit is paid to beneficiaries.
If the insured outlives the term, the policy provides no payout. Coverage stops.
The policy may allow conversion to permanent insurance or offer guaranteed renewability.
But there is no actual “maturity” with payout for term policies. The insurance company keeps the premiums paid and coverage expires.
Taxation at Maturity
The amount received from a matured permanent life insurance policy may be partially taxable:
Cost basis – Your premiums and other contributions are nontaxable.
Gains – The cash value growth above cost basis is subject to ordinary income tax.
Withdrawals and loans during the life of the policy also reduce the taxable portion at maturity.
Death benefit payouts are not taxed as income. But maturity payouts on permanent policies do incur income tax liability on gains.
What Happens if the Insured Dies After Maturity?
If the insured dies after the maturity date, the life insurance company will not pay out a death benefit to beneficiaries. Since the contract has terminated, there is no coverage in place.
The maturity proceeds that were already paid out to the policy owner become part of their estate. This money can pass to beneficiaries through estate planning distributions or be used for final expenses.
But the insurance coverage itself ends when the policy matures. There is no death benefit after that point.
Can You Delay or Avoid Maturity?
A few options exist to prevent policy maturity if you still need coverage:
Maturity extension rider – This rider delays maturity in yearly increments to keep coverage active.
Reduce face amount – Lowering the death benefit before maturity can maintain the policy longer.
Policy restructuring – Options like reducing face amount or terminating riders can be used to avoid pending lapse.
New policy purchase – You may be able to replace the coverage with a newly purchased policy.
Letting the policy mature should be avoided if you still need life insurance. Discuss options with your insurance company before the maturity date hits.
What Happens if You Can’t Afford Premiums Before Maturity?
If you can no longer afford premiums as the policy nears maturity, a few things could happen:
The policy could lapse, terminating coverage unless cash value remains.
The insurance company exercises nonforfeiture options, such as converting to reduced paid-up insurance.
You may be able to take a policy loan to pay premiums until maturity.
The insurer may offer to buy back the policy (sell it back to the company).
So letting the policy lapse due to unaffordable premiums could cost you the death benefit. Explore ways to keep it in force until maturity or beyond.
Summary of Life Insurance Maturity
Permanent policies and some endowments have set maturity dates when issued. Term policies don’t mature.
Maturity typically occurs between ages 95-121, depending on when the policy was written.
At maturity, the policy owner receives the cash value payout or death benefit amount. This income may be partially taxable.
Options exist to delay an upcoming maturity date if coverage is still needed.
No death benefit is paid if the insured dies after the maturity date.
Understanding when your policy matures and the available options can help ensure you receive benefits – whether life insurance proceeds or cash value payout. Discussing upcoming maturity with your insurance professional is key to making the right choices.
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