Most of us don’t know exactly how life insurance works, especially if we heard the term permanent life insurance. We are going to deep dive into the insurance world and see what it actually means.
In comparison, life insurance gives coverage for a certain period of time and most policies have twenty to thirty years of coverage, sometimes it may be more than that. On the other hand, permanent life insurance coverage is longer than regular life insurance.
There are several tiers in permanent life insurance and it is better to know each one of them. Whole life insurance allows our family or a specific individual to get a fixed amount when the policyholder dies. Variable life insurance, on the other hand, invests your premium payments and provides you benefits depending on how the market performs. Lastly, universal life insurance allows you to make changes in your payment plans but this will also the policy holder’s death benefits.
What most people don’t actually know, some of these policies have a certain maturity date. The Texas Department of Insurance suggests that maturity dates for certain policies will take effect when the policyholder turns 95 or 100 years old. According to MarketWatch Analysis of Social Security Administration, almost eight percent of women aged 45 is expected to reach 100 years.
What it means to us
Financial planner Shomari Hearn mentioned that “After years of paying premiums for a policy you expect to remain in place until your death, you may lose the benefit of passing wealth to your heirs tax-free.” Hearn later added that “Sometimes you won’t even get full value from your policy.”
This points out the federal tax exemption of life insurances that is less than $5 million. Once our policies matured, we and our beneficiaries might not the benefits that we all expected. What’s worst, if the payout exceeds that certain amount, our beneficiaries will be taxed as a regular income.
For variable universal life insurance, It actually depends on how the market performs. Hearn also mentioned that “If investment results are poor, the cash value at maturity may be considerably less than the promised death benefit.”
Things to know
©Money Savings Expert
It is important to check the maturity date of our insurance policies. Recent insurance policies that were purchased within the last 15 years may reach its maturity if we reached 120 years.
100 years was the default maturity for any insurance policies prior to that 15-year period. However, there are certain policies that mature at 95 or 96 so it is worth checking your policy just to be sure.
If this is the case with your insurance policy, you can contact your carrier and ask for a ‘maturity extension rider’ for updating the maturity from 95 to 120. It is worth mentioning that not all insurance companies offer this service so better contact our insurance company for this.
Cover Photo Credits: Conroe Willis Family Medicine