Whole life insurance policies were the first “permanent” life insurance product designed (even guaranteed) to provide a full death benefit at maturity as long as it was fully funded. However, is it really permanent? Polices have expiration dates. Although the life insurance marketplace has adjusted and policies today are issued with maturity ages of 120 and beyond, there are still many older contracts in existence which mature at age 100.
According to the U.S. Census, there are more than 50,000 centenarians living in the Unites States. So, what happens with an older policy that matures at age 100 when the policy owner celebrates the 100 year mark? It is a standard feature of permanent life insurance, a product combining a tax-deferred savings component with tax-free death benefits, that upon maturity the death benefit is terminated and the cash surrender value shall be paid out. If this occurs, the cash value proceeds could be subject to income taxation, just as if the policy were surrendered.
A recent Wall Street Journal article describes a lawsuit filed this month involving a 99 year old man, Gary, who was advised that upon age 100 his two policies totaling $3.2 million in death benefits would be terminated. After the family was unsuccessful in seeking an extension of policy benefits, they filed a federal-court lawsuit in Maryland, accusing Transamerica of knowingly using a too-low age at time of sale in the early 1990s. The suit also alleges the insurer improperly marketed the policies as “coverage for life”. The family contends that $1.5 million was paid in premium over the years and seeks revision of the contract(s) to allow coverage until Gary’s death. The lawsuit also seeks an award including punitive and other damages.
With more Americans living beyond 100, we may see more of these types of cases. So, what should you do? You need to know your policy contract, maturity age, and what happens at maturity. If you want insurance coverage past the maturity age of the policy, you should check now to see if there are newer alternatives that may provide coverage past age 100.