Life Insurance: Managing Premiums and Policy Maturity
by Peter Katt
Explaining the implications of when and how a permanent life insurance policy matures can seem like a performance of Abbott and Costello’s “Who’s On First” routine.
But it is information you need to understand in order to make informed decisions regarding your permanent life insurance.
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One way for a policy to mature is the insured’s death. Proper management of a policy depends on understanding how a policy matures other than death. But there isn’t a one-size-fits-all answer: How a policy matures depends on the type of policy.
Whole Life Policies
Until recently, participating whole life was set up to mature at age 100. Contract premiums and dividends were programmed for the death benefits and cash values becoming equal at age 100. For insureds living to age 100, the policy matures for its cash values, which will equal the death benefits. Most companies continue the policy until the insured dies and then pay out the cash value as an income-tax-free death benefit, although there is no certainty as to this outcome. Some companies pay out the cash values at age 100, and those payments would be subject to income taxes. The genius of participating whole life is that the increase in paid-up addition death benefits along with the guaranteed elements will always result in cash values equaling death benefits at age 100. As you will see below, this isn’t the case with many other types of policies.
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