Check the Policy: Life Insurance Terminations on 100th Birthday

New problems arise with every generation. With current seniors having longer and healthier lives, many are now reaching the age of 100. Communities celebrate it, the media does a feature on it, and the insurance company terminates their life insurance plan. They suddenly become too much of a risk to insure. The daily struggles of living to be 100 is demanding. Just waking up and getting out of bed is a higher risk for Centurions. With a twinkle in their eye and the best grin ever, those 100-year-olds keep on keeping on. Now they have to ask for an explanation of why after decades of paying for life insurance that it gets taken from their family.

It Begins With the Contract

A permanent life insurance policy offers money to beneficiaries to pay any outstanding bills, help take care of an estate or even pay funeral expenses. A phrase exists in life insurance contracts that does not fully impact a person till they reach those elderly years. The words “policy matures “signifies an ending date to the policy and some policies state the age of that. No one plans on being 100, it just happens. Policies bought before 1990 have a younger maturity age than some newer policies. These older contracts mature at the age of 100 while newer policies use the age of 121. All life insurance policies have a basis in mortality tables. Mortality tables update occasionally. The last update resulted in the age of 121 chosen as termination of the policy. The life insurance at maturity reverts to a cash surrender value that pays only face value and not what a person paid in premiums. The U.S. Census lists the number of centenarians as over 50,000 and that number will surely increase. Rather than being a rare occurrence, it will become common to outlive the life insurance policy.

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A Court Case

?What brought this problem to light began with senior Gary Lebbin who in September 2017 will become 100 years old. He received a letter from his insurance company with the bad news; having two life insurance policies worth $3.2 million in death benefits, when Gary turns 100 years old, both policies will cancel. Mr. Lebbin faithfully paid his premiums over the years to an accumulated total of $1.5 million. The contract will pay, but only the net cash value, which remains far below what he paid in premiums. If the person who bought the policy dies the beneficiary gets the money tax free, but if the person lives to one hundred and the policy cancels, the family pays taxes. In Gary’s case, the family has been fighting for coverage till he dies.

IRS to the Rescue

The IRS has been following the issue. They have posted a set of directives on this type of problem. The IRS created a safe harbor for calculations for those having life beyond 100. It suggests that the contract meet a cash value accumulation test. Known as IRS Notice 2009-47, it lets the insurance policy function like it was maturing at age 100 to continue past the age till 121 years old for seniors. It extends the mortality tables for those reaching ages beyond 100. Even though the directive has been issued on what to do, companies have still canceled policies. These families will not receive the money the senior citizen intended them to have.

Elder Law

When an elderly parent lives to such an advanced age, permanent life insurance policies are just the beginning of things to review. Check all of a parent’s policies for such phrasing. See how policies were updated over the years, and if it applies to the policy at hand. Elder law attorneys specialize in the legal needs of older adults. They can look at contracts and see any issues. The eldercare recommendations may help alleviate a problem such as found in permanent life insurance. They can make companies aware of IRS rulings that allow exceptions. This helps keep a financial portfolio intact. The best-laid plans for finances hijacked by a phrase in a contract made decades earlier does not seem fair. In those decades life changed, insurances changed, and laws changed. So why when everything else updated, why did the insurance industry not develop an extension to ensure permanent life insurance until death for the elderly? Insurances have handled things properly according to the contract language but is it fair, is it moral, and did the contract serve its intended purpose? People buy such insurance products for “intended purposes.” Does the intended purpose of the product out rank the contract structure over such a long term? All good questions that need an answer and a policy update.

Conclusion

Paying premiums over a long period does not guarantee a payment when a person needs to use their insurance. It remains a common problem on insurance contracts. Families need to scrutinize contracts and ask questions.

For more information visit ageucational.com

https://www.tdi.texas.gov/pubs/consumer/cb018.html

https://www.bivenslaw.com/elder-law-arizona/is-your-life-insurance-policy-valid-after-age-100/

https://www.wsj.com/articles/happy-100th-birthday-there-goes-your-life-insurance-1500548402

https://www.irs.gov/pub/irs-drop/n-09-47.pdf

file:///C:/Users/Mary%20Page/Downloads/tax-2011-vol7-iss1-adney.pdf