Are Your Clients Outliving Their Life Insurance?

Due to a more health-conscious society and recent advances in medicine, Americans are living longer . While it used to be unusual for a person to reach their 100th year, such longevity is becoming more commonplace. This is great news, but it does push some questions about life insurance to the forefront.

What happens if a client outlives his or her insurance policy?

Many life insurance contracts, particularly those drafted before the early 2000s, endow when a person reaches the age of 95 or 100. Depending on the terms of the individual policy, this situation typically results in 2 distinct outcomes:

  • Premiums on the policy will no longer be due and the client may be able to postpone payment. The value accumulated thus far will continue to grow on interest alone until it is eventually paid out at a later age or at the insured's death.
  • The cash value of the policy may be paid out immediately. While on its face this may sound good, it can actually create a problem due to the potentially harmful tax consequences to the beneficiary . For example, if an individual has paid $2 million in premiums over his or her lifetime and is paid out the full $5 million cash value, rather than the death benefit, in a lump sum, a $3 million tax liability would result. Given that many choose life insurance policies to offset substantial estate tax liabilities, a lump sum payout could negate the purpose of choosing insurance in the first place.
  • One solution available to your clients is to request “extended maturity benefits” from their life insurance carrier.

    This is a rider which extends the duration of the policy, often for no extra cost. Some extend coverage to the age of 120, and others for the entire lifetime of the policyholder, no matter how long he or she lives.

    This type of extension is not something the insurance carriers will advertise. It’s up to you to look out for your clients’ interests. In order to guarantee that none of them fall between the cracks, contact us .