More Clients Asking, What Happens To My Policy If I Live To 100?
With the population aging, and the likelihood of living to age 100 increasing, many agents are being asked by clients, “What happens to my life insurance policy if I live to age 100?”
This may not seem like much of a reality when dealing with younger individuals, but those agents who work in the mature markets with substantially more assets may find this question a difficult one.
“This has been a fairly prominent issue for years,” says Paul Strong, vice president life product management at John Hancock.
Historically, most companies have priced their life insurance products with a maturity age of 100. “At Prudential, policies issued since 1981 all have a limiting age of 100,” says Eleanor Hurley, vice president and actuary, Prudential Financial, Newark, N.J.
So what can a policyholder expect when blessed with this longevity?
Technically, many of the older life insurance contracts will endow, meaning that the cash value will equal the death benefit. This amount is then paid out to the policyholder.
The problem with this is that the distribution will be considered a taxable event, thus eliminating the tax-free death benefit that life insurance provides.
There are a couple of different paths companies can take, observes Strong.
One path, triggered by a policyholder reaching age 100, is to reduce the specified face amount of the policy to the accumulated value of the contract, explains Strong.
While this does solve the problem of creating a taxable distribution, it does not help the policyholder if there is a significant reduction in the face amount of the policy, however. This can be especially disappointing to people who have experienced less than illustrated returns in their policies.
The other path, continues Strong, results in “no change to the specified face amount, regardless of the accumulated value. There would be no more mortality charges and no more contract expenses.”
“Some carriers will use some form of a rider to extend policy maturity,” says Charlie Perlotto, in-force product manager at Lincoln Life. Taking the rider approach allows companies to charge for the maturity extension.
Strong notes that “companies can build it right into the product.” Some carriers have expanded their contract language to include an age-100 provision, explains Strong.
At Lincoln Life, “all new products have a continuation-of-insurance provision,” says Perlotto. This provision “will continue the full death benefit beyond age 100. This is not a rider, its a feature of the policy. It’s written right into the contract.”
Furthermore, life policies at Lincoln “don’t have a maturity date,” continues Perlotto. “There is no maturity age specified in the contract.”
Similarly at John Hancock, notes Strong, “there is no maturity age. There is no endowment point defined in the contract.”
Because of this “built-in” feature, “there will never be a forced maturity event,” explains Strong.
Building this into the development process has proved to be successful for Lincoln, says Perlotto. “When we develop a new product, the provision is filed as part of the policy form, so all the states have an opportunity to look at it.”
Prudential takes a slightly different approach, says Hartley. “As a general rule, when the insured reaches the limiting age , the policy will become paid up.”
Hartley notes that this is not a contractual part of the policy, but policyholders should expect an official notice from the company.
“The policyholder will receive a notice giving them the option of surrendering the contract for its value,” continues Hartley, “or extending the benefit beyond age 100.”
Explaining how the contract works may help settle a few questions raised by clients. “We think its important, especially since we are aiming at the older, more affluent market,” says Perlotto.
Reproduced from National Underwriter Life & Health/Financial Services Edition, July 27, 2001. Copyright 2001 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.