Life Insurance on Policy Maturity

Those with two plans have been referred to me by two consultants in the past two weeks with the same question. “Can you help us find out what happens to the life insurance we have for mom/dad when they turn 100?”

Mom and dad (from different families) were both 99 years old. I had good news for one family and bad news for the other.

Bad things Story

Here are some of the family agreement language and policies that will not last more than 100 years:

“Termination. All rights under this policy terminate when one of the following occurs:

  1. You are asking for the publication to stop. (Such a request requires submission of the policy.)
  2. The protected person dies.
  3. Sooner or later the policy’s Coverage Expire or Termination Date.
  4. The grace period is running out.

We agree to pay the Death Benefit to the Beneficiary upon receipt of sufficient proof of the death of the Insured while the policy is in force and before the Termination Date.

‘Termination Date’ means the date on which the premium is paid to the holder if the Insured is alive. All insurance under this policy expires on the expiry date. The Termination Date is the Policy’s Anniversary Commemoration near the Insured’s 100th birthday.”

The policy had an agreement date of 1994, not unusual for international life policies since that time. It will provide a cash value on the anniversary date closest to the 100th anniversary of the policy. Let’s assume that the death benefit and cost were $1 million. The family will receive the money, but since it cannot be considered a death benefit, any benefit, which may be necessary, can be paid at the normal cost. If the cash value was $1,000, $10,000 or $100,000, then that’s the check that would be sent, plus any profit.

What else could happen? There are also policies where the cash value is converted into a death benefit at age 100 and remains active. Based on the above, this could mean that there was a death benefit of $1 million or it could be much lower, depending on the value of the money. This would be disappointing as the original would have been the same if the $1 million death benefit had remained in effect.

The next change in medicine was that the full death benefit would remain in effect if there was at least one dollar of value in the policy per 100 years. Although it was risky and probably not saving the benefits, pursuing and paying a small sum of money per 100 would provide the full benefit of death forever when the process reaches that point.

Guaranteed Universal Life (GUL) brought evolution one step further. If an unlimited guarantee was in effect, the entire death benefit ended regardless of the cash value, as long as the policy was structured that way. It is important to remember that GUL policies do not last a lifetime. This policy can be proven to be 90 years old, but it is still a GUL policy. Some decision-makers do not think that providing annuities up to 120 years is appropriate if paying for 95, 100 or 105 years, for example, seems sufficient in their circumstances.

The Good News

Here is some of the language of the family agreement and the policy that is more than 100 years old:

DATE: 10/06/2003

AGE: 80

INSURED CLASS: Standard Non-Nicotine

DUE DATE: 10/08/2023

The Cash Surrender Value is payable on the Scheduled Maturity Date, unless extended at the option of the Owner.

Death Pay On Death Insurance

The benefits of Death are:

  1. Death Benefit provided by the Death Benefit Method selected; or
  2. Limited Death Benefit from the date of death

To resolve

This policy will expire in the following cases:

  1. The Scheduled Maturity Date of the Policy unless you request to continue the Policy after the date specified below; or…

Scheduled Maturity Date

The Scheduled Maturity Date is the last date you choose to pay the premium. Unless you choose to continue the Plan beyond this date, the Plan will expire and the Cash Surrender Value will be paid to You.

If elected, the Policy may continue to be in effect after the Fixed Maturity Date in accordance therewith;

  1. The policy must be effective on the Scheduled Maturity Date;
  2. The holder including any holder of the notes must approve the Notes in order for them to proceed and must be appointed at least 30 days prior to the Scheduled Maturity date.

If any of the above conditions are not met, the Policy, if still active, will expire on the Scheduled Maturity Date.

After the Scheduled Maturity Date;

  1. Death Benefit will be Level…

This policy tells a very different story. However, if you read the language, you will see something interesting: The death benefit of the policy is not just about work; you have to ask. Yes, you get the full death benefit or nothing (current cash value is $0) depending on whether or not you file a one-line claim and send it to the home office. Indeed!

If the family had not asked their advisor and thought about this fact, as it would make sense, they would have woken up one day with nothing, not millions. This system was used with a single 7-digit value. This resulted in a large death benefit that would be unnecessarily lost if the prescription was not mailed. Yesterday, I wrote the letter and sent it to the trustee to sign and send it back to me to get it on file at the carrier. This is not the first time I have done this.

Bill Boersma is a CLU, AEP and certified insurance consultant. More information can be found at www.OC-LIC.com, www.BillBoersmaOnLifeInsurance.info, www.XpertLifeInsAdvice.com or email at [email protected] or calling 616-456-1000.