What happens when a life insurance policy matures?
When you take out a life insurance policy, you might notice that it contains a date when your policy matures and there can be some confusion as to what this actually means.
In simple terms, the maturity date of your life insurance policy is the date when the policy ceases to operate and the accrued benefit ‘matures’.
How this works is different for each type of life insurance coverage and so the basic concept for each policy is summarized below:
When a Term Life Insurance policy matures
With this kind of policy the coverage runs for a pre-agreed period, usually around 15-25 yrs. If you have selected a term life insurance product and you are still living at the end of the period of insurance, there will be no payment made to you. The policy will expire.
If, however, you die during the period of insurance, the agreed benefit amount will be paid as a lump sum to your beneficiaries. The policy will then expire in exactly the same way.
When a Universal Life Insurance policy matures
This policy will provide coverage for the entirety of your life, typically around your 100 – 125th birthday. In addition to standard life coverage, this policy can provide you with a cash account savings benefit and maturity can therefore happen in more than one way:
When you die, the policy will mature and expire. Any benefits of the life insurance will be paid to your beneficiaries. Cash value in the policy may or may not be paid to the beneficiary- this depends on the option selected at the time of application.
If you become terminally or chronically ill, many times you are given the option to “cash in” your insurance policy for a portion of the death benefit, minus administrative fees. This option may not be available by all carriers, however, so it is important to check into this before applying for coverage.
When a Whole Life Insurance policy matures
This policy also provides a death benefit and a cash value, however the two are linked and are only payable if you die or if you outlive the maturity date of the policy. If you do outlive the maturity date you will be paid a cash lump sum, but this may be lower than the death benefit.
There is one note of caution. Any cash value (benefit not resulting from your death) paid to either yourself or your beneficiaries is considered general income. This figure, minus premiums paid, is therefore eligible for taxation at the normal rate. Death benefits are not subject to taxation (certain requirements apply).
For more information or advice, please contact us and we can offer you expert guidance. You can also call us at 800-970-8411.