Whole Life Insurance: Does It Expire With Age?

Whole life insurance is a permanent life insurance policy that does not expire as long as premiums are paid. It is designed to cover the insured for their entire life, but some policies can end between the ages of 100 and 121. Whole life insurance policies accrue cash value over time, which can be withdrawn or used to cover premiums. Unlike term life insurance, whole life insurance policies do not expire after a certain period. Instead, the policy remains in effect until the insured passes away or cancels the policy.

Whole life insurance vs term life insurance

When it comes to life insurance, there are two main types to choose from: whole life insurance and term life insurance. Both have their pros and cons, and the right choice depends on your financial goals, budget, and unique needs. Here's a detailed comparison to help you understand the differences between whole life insurance and term life insurance.

Whole Life Insurance

Whole life insurance is a form of permanent life insurance that covers you for your entire life, rather than a fixed period. It has a cash value component that grows over time, which you can borrow against or withdraw under certain conditions. The premiums for whole life insurance tend to be higher than those for term life insurance because the coverage lasts a lifetime, and the policy accumulates cash value. Here are some key features and considerations:

• Premiums: Whole life insurance premiums are locked in and remain predictable throughout the policy. They do not change with age or health status.
• Death Benefit: Whole life insurance provides a guaranteed death benefit, which means your beneficiaries will receive a payout when you pass away, regardless of when it happens.
• Cash Value: Whole life insurance accumulates cash value over time, which can be borrowed against or withdrawn. However, any outstanding loans or withdrawals will be deducted from the final death benefit.
• Complexity: Whole life insurance can be more complex and challenging to evaluate due to its lifelong coverage and cash value component.
• Cost: Whole life insurance is typically more expensive than term life insurance due to its permanent coverage and cash value accumulation.
• Dividends: Some whole life insurance policies may pay dividends, depending on the company's financial performance. These dividends are not guaranteed.
• Medical Exam: Many whole life insurance policies require a medical exam to determine premiums and insurance risk. No-exam policies are available but tend to have lower coverage levels.
• Suitability: Whole life insurance may be suitable if you want permanent coverage, a policy that builds cash value, and can comfortably afford the higher premiums.

Term Life Insurance

Term life insurance, as the name suggests, covers you for a specific term or period. It tends to be cheaper than whole life insurance because it is temporary and does not build cash value. Here are the key features and considerations:

• Policy Length: You can choose the length of coverage, typically ranging from 1 to 30 years or until a specific age.
• Cost: Term life insurance is generally the most affordable option as it offers temporary coverage without a cash value component.
• Death Benefit: Term life insurance provides a guaranteed death benefit if the insured person dies during the term. If the policy term is outlived, there is no payout.
• Flexibility: Term life insurance allows you to choose the death benefit amount and term length that suits your needs.
• Conversion: Some term life policies can be converted into whole life insurance at a later date, but this option may have time or age limits.
• Medical Exam: Many term life insurance policies do not require a medical exam, making them easier to obtain.
• Suitability: Term life insurance may be suitable if you only need coverage for a specific period, want affordable premiums, or want the flexibility to wait before purchasing whole life insurance.

Both whole life insurance and term life insurance have their advantages and disadvantages. Whole life insurance offers permanent coverage, a guaranteed death benefit, and a cash value component but comes at a higher cost. On the other hand, term life insurance is more affordable, flexible, and straightforward but only provides temporary coverage with no cash value accumulation. The choice between the two depends on your individual needs, budget, and long-term financial goals. It is essential to carefully consider your options and seek professional advice to make an informed decision.

Permanent life insurance policies

While permanent life insurance policies are designed to cover you for your entire life, there is a caveat if you live a long life. Many policies today are set up to mature when the policyholder reaches the age of 121, in response to increasing life expectancy. However, older policies may have a maturity age of 100. If you live long enough to reach the maturity age of your policy, it will pay out the cash value, and your life insurance coverage will end. It's important to note that while a benefit paid to beneficiaries upon the death of the insured is not considered taxable income, a payout received due to policy maturity would be taxable.

When considering a permanent life insurance policy, it's essential to review the terms and conditions carefully and ask your agent about the maturity age to ensure it aligns with your needs and expectations.

Term life insurance policies

The process of purchasing a term life insurance policy involves selecting a death benefit amount and a "term", or length of time for which the policy will be in force. Terms can vary in length, ranging from one year to 30 years. Once the term is selected, the insured individual will pay premiums on the policy. If the insured individual passes away during the term and the premiums are paid on time, the selected beneficiaries will receive the death benefit.

It is important to note that term life insurance policies do not accumulate cash value, unlike some permanent life insurance policies. This means that if the insured individual outlives the policy, their beneficiaries will not receive any death benefit, and the premiums paid will not be returned. However, some term life insurance policies offer a "return-of-premium" feature, which refunds the premiums if the policy expires without a claim. These policies tend to have significantly higher premiums than standard term life insurance policies.

At the end of the specified term, a term life insurance policy will expire, and the coverage will end. However, the insured individual often has the option to renew the policy for an additional term or convert it into a permanent policy. If the individual chooses to renew the policy, the premiums will be recalculated based on their current age, resulting in higher premiums.

Premiums and payouts

Whole life insurance is a permanent life insurance policy that remains in force for the entirety of the insured's life, provided that premiums are paid on time and in full. When taking out the policy, the insured agrees to a contract in which the insurance company promises to pay the beneficiary a certain amount of money, known as a death benefit, upon the insured's death. The insured chooses their coverage amount, and the premium is calculated based on their age, gender, and health. The premium remains the same throughout the policy, regardless of health or age changes.

Whole life insurance policies accrue cash value over time as premiums are paid. This cash value can be withdrawn as a loan or used to cover insurance premiums. However, any outstanding loans must be repaid before the insured passes away, or they will be deducted from the policy's death benefit.

Whole life insurance is more expensive than term life insurance because it covers the insured for their entire life, and the cost of insuring someone increases as they age. The premium amount typically increases by about 8% to 10% for every year of age, and this increase can be as high as 12% annually for those over 50 years old.

When the insured reaches the age of maturity, typically between 100 and 121 years old, the policy will pay out the cash value to the insured, and the life insurance coverage ends. While it is unlikely that the insured will live to this age, some older policies have a maturity age of 100, which can create issues for those who live to that age.

If the insured outlives the policy, there are a few options available. Some insurance companies may pay the full cash value to the policyholder and close the policy. Others may grant an extension, allowing the policyholder to continue paying premiums until their death. Alternatively, the insurance company may stop collecting premiums but keep the policy active until the death benefit is needed.

In the case of term life insurance, the premium is established when the policy is purchased and remains the same every year. However, whole life insurance policies may have premiums that rise annually. The premium amount is determined by the insurance carrier each year based on actuarial tables that estimate life expectancy and mortality rates. As the insured ages, the cash value of the policy increases, and the premium rises accordingly.

When a whole life insurance policy matures, and the insured outlives the policy, the insurance company may offer the option to renew the policy for a limited number of years without requiring evidence of insurability. This option can be beneficial for those who develop serious health issues, as it ensures continued financial protection for their loved ones. However, the premium will increase significantly each year due to age-related risk increases.

Policy renewals

Term life insurance policies have specified terms that vary by policy. Many different lengths of terms are available, and common term lengths are yearly/renewable, 5-year renewable, 10-year, 15-year, 20-year, 25-year, and 30-year. At the end of the specified term of the policy, life insurance coverage ends. At this time, the insured often has the option to convert the policy to a permanent policy or to renew the term. Check the conditions of the policy to see if it has these options.

Some term policies offer the option to renew on a year-by-year basis after the initial term expires. Renewal maintains the original coverage amount but is typically more expensive each year due to age-related risk increases. This option is particularly useful for those who develop health issues that make obtaining new insurance challenging.

Most term life insurance policies offer the option to renew for a limited number of years without requiring evidence of insurability. This means you can extend your coverage even if your health has changed. For instance, a 10-year term policy may be renewable each year for up to 10 additional years. During each renewal, your premium will increase based on your current age.

Technically, most term life insurance policies don't expire due to a guaranteed renewability feature, which enables you to lock in your underwriting class and extend your coverage for short periods of time. You can usually renew the policy for one year, which gives you time to consider your options if you want coverage for longer.

Extending your term policy comes at a cost, though. In fact, your premiums will be exponentially higher than the low rate you enjoyed during the policy's original term. And, the price will increase each year you renew. When you renew a policy, insurers are assuming that you're paying the heightened premiums because you can't qualify for medically underwritten coverage.

Permanent life insurance

Permanent life insurance policies, such as whole life insurance, are more expensive than term life insurance. However, permanent life insurance policies do not expire as long as premiums are paid on time. Their coverage lasts for the insured's entire life. Some permanent life insurance policies can end between ages 100 to 121. This will depend on the policy or company. If the policy ends at this age, you will still get the death benefit.

Frequently asked questions