In his new article, Michael Kitces gives tips on outliving the end of life insurance mortality tables. The reality of life insurance policy is that it has an ultimate maturity date. If you live beyond that date, the policy “matures” and pays out it’s face value.
The article begins as follows:
The conventional view of “whole life” and other forms of “permanent” insurance coverage is that the policies are designed to last for your entire life, however long you may live. As long as you keep paying the premiums, you can keep your coverage, until it pays out as a tax-free death benefit.
However, the reality is that the underlying structure of permanent insurance, and the key characteristic that makes it affordable to have coverage – even in the later years of life – is that a “permanent” insurance policy actually has an ultimate maturity date, such as age 100. Which means if you live beyond that point, the policy “matures” and pays out its face value!
And the problem with outliving life insurance is not merely that the policy matures and pays out its benefit, but the fact that it was paid while alive – and not as an actual death benefit – meaning the payout is a taxable gain to the policyowner! In other words, outliving the life insurance maturity date not only marks the end of life insurance coverage itself, but a taxable event!
Check out the full article here: The Age-100 Tax Problem With Outliving the End of Life Insurance Mortality Tables – Kitces.com
Posted by Pooja Shivaprasad, Associate Editor, Wealth Strategies Journal