What happens when a whole life insurance policy matures?

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Life insurance is the payment of a certain amount of money known as a premium, in exchange for a payment by the insurer on the death of the policyholder, or after a certain period of time. 

Make sure you are fully informed of all the terms and conditions of these types of plans and if you have further questions, always consult an independent insurance agent to help you navigate what can sometimes be very complicated policies.

Main types of life insurance

There are two main types of life insurance policy; they are Term Life Insurance and Permanent Life Insurance

Permanent Life Insurance is further divided into two categories: Whole Life Insurance and Universal Life Insurance

This article is focused on Whole Life Insurance. This type of insurance policy, which is also known as Straight Life or Ordinary Life Insurance, is obtained by paying a specific amount of money (a premium) every year which provides the assurance of protection during your lifetime. 

Whole life insurance pros and cons

Due to the fact that the Whole Life Insurance policy stays active as long as you keep paying your premiums, the premiums are higher than those payable with Term Life Insurance. Also, these premiums are fixed. The prices of the premiums are based on the age of the insured when the policy is taken out, and they do not increase as you get older. This type of insurance policy falls under the ‘cash value’ category alongside Universal Life, Endowment policies and Variable Life, as in addition to your life insurance coverage, your premiums also include an extra amount of money that is invested for you and serves as an extra cash payout at the end of the policy.

The benefits of a Whole Life Insurance policy are that;

  • The beneficiaries of your life insurance policy are given an amount of money after your death, whenever that occurs.
  • The policy serves as a kind of savings policy for you due to the cash accumulated over the term of the insurance policy.
  • The value of this kind of policy doesn’t decrease.
  • The rate you pay for your policy – the premium – does not increase over time.

On the flip side, the downsides of a Whole Life Insurance policy are that:

  • It has more features, hence making it more complicated than its counterpart and more difficult to understand.

Unlike Term Life Insurance that is only for a specific period of time, Whole Life Insurance should cover you for as long as you’re alive, although, despite the name of the policy, there is in actual fact, a maturation date with a Whole Life policy. It is generally set at 95 or 100, or sometimes 120 years of age, so much older than the average life expectancy, however, there is a chance that you will outlive a Whole Life Insurance policy. 

Additionally, the Whole Life Insurance policy builds cash value which you can access at any time, for any reason. This cash value grows each year regardless of how bad the economy is at the time. 

When a Whole Life Insurance Policy Matures

When you sign up for a life insurance policy, it comes with a date that indicates when your policy matures. The maturity date of a life insurance policy is the date when the policy stops operating and therefore the accumulated benefit matures. 

However, for the different types of life insurance policy, there is a different format on how ‘maturity’ works.

Typically, Whole Life Insurance is an endowment policy; this is a form of policy that ‘matures’ after a specific time. In most cases, 10-20 years after the policy has been purchased or when the insured reaches a certain age, usually  95 to 121 years with Whole Life Insurance. These are ages that very few people live to see. Nevertheless, if the insured lives up to the maturity date, the death benefit or the cash value is directly paid to the policyholder. 

It is important to know that any cash value paid to either the insurer or his beneficiaries is considered general income since it’s a benefit that wasn’t obtained because of the death of the insurer. Therefore, taxes would be deducted at the normal rate from this cash value excluding the premiums.  

Changing Maturity

Technically, you cannot change your policy’s maturity date. The trick to it is if you want to access your cash value earlier than the maturity date you can just easily cancel your policy or take out a loan on the policy.

Also, if you’re concerned with reducing or ending your premium payments by moving the date further, simply do so by using the cash value acquired to purchase a reduced paid-up policy.

In addition, insurers of this policy provide you with the option of keeping the cash profit after the maturity date to then be paid to your beneficiaries as an additional death benefit so as to avoid payment of tax.

Cancelling a Policy

If you are eager to get your cash value, or you are in a difficult situation and need money urgently, you can do so by cancelling your policy.

However, this doesn’t come free, as cancellation fees will need to be paid. The amount of these charges are made known in the life insurance contract.  Once you cancel your policy, your death benefit ends as well. 

Some whole life policies give you the privilege of stopping the payment of your premiums after paying for a certain period of time.

This is only possible when the cash value has reached a level where the purchase of paid-life insurance is feasible.

Also, after you’ve done this, your death benefit would be reduced.

Tax-free Loans

As the owner of a whole life policy, you can borrow from its loan value which is dependent on the cash value that has been accumulated in the policy. If you do not pay back the loan before your death, the amount borrowed would be deducted from your death benefit.

Conclusively, once your Whole Life Insurance policy matures, you will be given the right to your whole payout entitlement, with no premiums left to pay after that point, and no entitlement to any further death penalty being available. 

Make sure you are fully informed of all the terms and conditions of these types of plans and if you have further questions, always consult an independent insurance agent to help you navigate what can sometimes be very complicated policies.

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