Life insurance acts as a safety net for your family and can be used to cover funeral costs, pay off debts and children’s education, replace lost income, help pay for medical expenses or long-term care, leave a legacy, act as a tax-advantaged capital accumulation vehicle, and more.

When a life insurance policy matures/endows/ends, it means that the policy has reached the end of its contractual term, and the policyholder and carrier may be free of contractual obligations. It is important to note that most currently-issued, permanent life policies mature at age 120 or beyond and may have provisions for what happens beyond that age.

Depending on the type of policy and its terms the policy owner may have several options. In this guide, we explore what happens when life insurance matures/endows/ends. 

This article is written as general education, and should not be considered as personal financial advice. If you would like personal guidance with life insurance, you can schedule a time to talk with one of our experts.

What to Do if Your Life Insurance Matures/Endows/Ends

When your life insurance policy matures/endows/ends, you may have several options. The insurance carrier should reach out to you prior to the maturity and depending on the type of policy, your options may differ.

With some policies, you may be able to remain protected under the policy and allow the death benefit to continue to grow until it is paid out upon the insured's passing.

You may also be able to take a lump sum payment, or receive payments from the policy's cash value over a period of time or the rest of your life.

You may also be able to reinvest the funds for future growth or use the funds for other investments.

In the next section, we will look in greater detail at how different types of life insurance work upon maturity.

If you are unsure of what to do with the funds, it is best to speak with a professional to determine the best course of action.

How Different Types of Life Insurance Mature/End

1. Term Life Insurance 

Term life insurance lasts for a term period (usually between 10-30 years). For most term insurance where the insured lives to the end of the term period, the owner will choose to have the life insurance coverage will simply end, and no money will be received by the policyholder.  

Most Term insurance policies allow you to continue the term insurance after the level period. If you continue the insurance and keep the same face amount then your premiums will generally increase each year. If you have the option to lower the face amount you may be able to maintain a similar premium, but you would be giving up death benefit.

There are some Return of Premium term life insurance policies that may return all premiums paid at the end of the term period, which is an option that usually come at an extra cost.

If you have a term policy with a mutual insurance company that earns dividends, you may also receive your final dividend on the last policy anniversary of the final year of your term. 

Note that most individual term insurance may have conversion options available before the term period ends. Conversion options allow policyholders to convert (change) their term policy into a permanent policy without evidence of insurability (meaning the insured would not need to take a medical exam or even be healthy to qualify).

It is important not to wait until the end of your term period to convert your policy to permanent as some contracts only allow conversion for a specific period of time (e.g. age 65, first 5 years etc.).  

If you would like to review your existing term insurance, our industry experts can help you get the optimal solution for your needs. 

2. Whole Life Insurance

Whole Life Insurance maturity happens when the insured lives past the contractual period that is outlined in your policy (e.g. after 10 years, age 65, 100, or 120).

Typically what happens at the end of the contractual period is that a whole life insurance policy endows. Endowment means that the policy owner is no longer obligated to make premium payments. 

The policy owner can then choose what they would like to have happen to the policy. The policy could be left in place, still providing a death benefit, and potentially still earning non-guaranteed dividends.

Dividends in whole life insurance can be used in many ways, with options such as purchasing paid up additional insurance, accumulation at interest, or even reducing outstanding loans which could increase the death benefit and cash value in the future. If the policy does not earn dividend but has an interest rate growth this may also grow the death benefit and cash value. 

The policy owner could also choose to cancel the policy at endowment or choose a settlement option.

If this happened, the cash surrender value would be paid to the policy owner, and the life insurance policy would cease to exist, which would also mean that future potential growth is forfeited.

The owner could choose to take the payment in a lump sum or be provided with settlement options such as an annuity for a certain period or for life.

In some instances, policy owners can get more than the cash surrender value but less than the death benefit by selling their policy in the viatical settlement market.

In these arrangements, an external investor buys the policy with the expectations of making a return by collecting the death benefit once the insured person dies, which may be controversial, and not a good option for everyone.

Endowment options are contract and carrier specific so make sure to review your existing policy.

3. Universal Life Insurance

When a Universal Life Insurance policy matures/endows/ends, the policy owner is no longer obligated to make premium payments.

Similar to whole life insurance, a universal life policy will endow once the end of the paid up period has been reached, which is outlined in your policy (e.g. after 10 years, at age 65, 100, or 120).

Typically, most insurance carriers would also stop charging specific costs (e.g. cost of insurance, premium taxes etc). Some policy charges may however continue (e.g. loan interest, investment charges, rider fees etc.).

Again, like whole life, universal life insurance policy holders can choose to keep the life insurance. If there is cash value in the policy it may continue to grow based on investment options available and may even grow the death benefit. 

The policy owner could also choose to cancel the policy at endowment or choose a settlement option, similar to what a whole life policy.

Endowment options are contract and carrier specific so make sure to review your existing policy.

Tax Implications for Life Insurance

It is extremely important for policy owners to note that the tax implications of a matured life insurance policy can vary greatly depending on the type of policy, the amount paid into the policy, the current cash value, how the ownership was structured, and the settlement option selected.

Generally speaking, money received from a term insurance policy (e.g. return of premium or dividends earned from a mutual carrier etc.) are considered a return of premium and are therefore not taxable as ordinary federal income. 

If the policy owner decides to keep the life insurance in place after endowment, and the insured passes away, the death benefit should be received by the beneficiaries free of ordinary federal income tax, assuming that there is a properly structured ownership and beneficiary arrangement.

For surrender or settlement options the policy owners may be subject to ordinary federal income tax on a portion of the cash received if the settlement amount is greater than the cost basis.

Policy owners should note that the cost basis is not the same as premiums paid. The insurance carrier should be able to provide the policy owner with a cost basis quote that could be used when discussing your specific tax situation with your tax advisor. 

Bottom line is to consult your tax professional prior to deciding what to do with your maturing policy.  

Conclusion

It is important to understand what happens when your policy matures/endows/ends and the benefits associated with it before you decide what action to take.

White Swan can help you understand your existing policy, explore other options, and take care of any additional life insurance needs you may have.