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.