What Is The Meaning Of Maturity Date On Life Insurance?
Life insurance policies have a maturity date, which is the date when the policy ends, and the maturity value is paid out to the policy owner. This value may be equal to the face amount or cash value of the policy, and it is specified in the contract. The age of maturity on a cash value policy is based on the age of the insured person and ranges from 95 to 121 years, depending on when the policy was issued.
Types of Life Insurance Policies
There are two main types of life insurance policies: term insurance and permanent insurance. Term insurance provides death benefit protection and does not build cash value. It does not have a maturity date whereupon the cash value automatically “endows” (is paid out) to the policy owner. Permanent life insurance, on the other hand, builds up a tax-deferred cash value over time that you can access via withdrawals, loans, or by surrendering the policy. The cash value is designed to offset the rising cost of insurance as the insured person ages. Permanent life insurance is more expensive than term and is designed to last until the death of the insured.
There are four types of permanent, or “cash value,” policies:
| Type of Policy | Description |
|---|---|
| Whole life insurance | A policy that provides a guaranteed death benefit and builds cash value |
| Universal life insurance | A policy that is more flexible than whole life and allows you to adjust your premiums and death benefit |
| Variable life insurance | A policy that allows you to invest your premiums in a variety of investment options |
| Indexed universal life insurance | A policy that allows you to earn interest based on the performance of a stock market index |
Maturity Date and CSO Tables
Regardless of the type of permanent life insurance policy, there is a policy maturity date, or end date, which is expected to be after the insured person dies. The year of maturity depends on which Commissioners Standard Ordinary Mortality (CSO) table was used, and this varies depending on when the policy was issued. CSO tables are the standard by which average life expectancy is measured across various demographics and are used in underwriting life insurance policies. Policies are designed to mature at the end of the particular CSO table used. As the CSO tables have been updated over the decades by the Society of Actuaries, the maturity dates for permanent life insurance policies have gradually increased.
If a policy matures and pays the maturity value, the policy ends, and any amount that exceeds the amount invested in the contract, such as premiums paid, may be taxed as income. However, if the policy owner wants to keep the policy in force beyond the maturity date, they may be able to buy a maturity date extension rider (MER), which keeps the policy from maturing until the owner elects to terminate the rider or until their death. Some policies automatically extend the maturity date when it arrives, even if the policyholder didn’t request the extension.
Conclusion
The maturity date of a life insurance policy is important because it marks the end of coverage and the payout of the maturity value. Permanent policies have a policy maturity date, which varies depending on the CSO table used and may pose a problem for insured persons who live beyond the expected age of maturity. Policyholders who expect their life insurance policy to mature prior to their death should contact their insurer for more information and consider buying a maturity date extension rider if they want to keep the policy in force beyond the maturity date.
