99 and Out? Why Your Elderly Parent’s ‘Permanent’ Life Insurance Might Vanish Before They Do…

Dear Mr. Miller:

My 99 year old father has, or I should say had, a life insurance policy for $100,000. I called the insurance company and they said the policy had been canceled.  I’m livid. Over the years we paid in more than the policy benefit and now it’s gone? My Dad struggled to pay that premium each year and keep the policy in tact. Even after my Mom was gone and my brother and I were on our own. What do I do now?

Son Battling for His Dad

Hold On—Don’t Give Up Yet: The Real Answers Are in the Policy Contract Itself
Why Keep Paying Premiums at 99? Most People Have No Real Answer—And There Might Be Better Options
Term or Whole Life? Why the Type Matters—and What the Cash Value Really Tells You
The ‘Endowment’ Surprise: When Cash Value Equals the Death Benefit at Age 100 (or Earlier)
Tax Implications: Gains Taxed on Endowment Payouts, But Death Benefits Stay Tax-Free
Unsure What Happened to the Policy? Call Us to Review It—and Explore Smarter Options for Yours

Dear Battling:
Hold On—Don’t Give Up Yet: The Real Answers Are in the Policy Contract Itself:  Don’t give up the ship yet. Several things have to be determined to come to a conclusion here. And the answers will generally be found in the policy, itself. Not the annual statement but the actual policy booklet or what is technically called “the contract.”

Why Keep Paying Premiums at 99? Most People Have No Real Answer—And There Might Be Better Options:  Before we get into the specifics of your case, of use to some of our other readers is the question: why does Dad have life insurance at age 99; why was it kept that long? When I ask many of my clients this question, they are often dumbfounded. They have no answer. There is no reason to have life insurance unless there is something that money is supposed to accomplish. Do you have dependents that will need that money to live on/go to college, etc. if you die? Is it to cover the burial/funeral costs because you don’t have enough other assets to do so? Is it to pay for death taxes? What was the goal. If none, then why keep it, keep paying the premium and shorting yourself in the process. Now at age 99 maybe you do keep it depending on your life expectancy. But even then, it can be cashed in for the cash value or maybe sold to an investor for more. There are various alternatives; call us at 760-436-8832 if you wish to discuss those alternatives.

Term or Whole Life? Why the Type Matters—and What the Cash Value Really Tells You:  As to your Dad’s case, first, was it term insurance or whole life. If the former, very possibly it did lapse because term is basically renewed each year or each 5 years or so, and the company may not be required to renew it. Whole life is generally different. It continues and generally builds up an increasing cash value each year (assuming the premium is paid).
If it was term, was it renewable at the company’s discretion or the insured’s (your Dad)? If whole life, what was the cash value which can be found in the statement sent by the company to your Dad each year? That cash value is generally considered guaranteed except in certain circumstances. By the way, one of those circumstances is death, i.e. in other words you don’t get paid both the cash value and the death benefit; generally you are paid whichever is larger. (And, contrary to what some say, no, the company isn’t stealing the cash value from you; the whole premium structure of the policy was based on the fact the company would not be paying out both and it is explicitly stated that way in the contract.)

The ‘Endowment’ Surprise: When Cash Value Equals the Death Benefit at Age 100 (or Earlier):  What may have occurred in your Dad’s situation is that the policy endowed. In other words, when the cash value equals the death benefit the policy is said to “mature” and the company pays out the full value and terminates the policy. That, traditionally, has occurred at age 100 although it would be spelled out in the contract. Some policies are specifically endowment policies and mature (i.e. endow) at a specified age or term, again, spelled out in the policy terms in the contract.

Tax Implications: Gains Taxed on Endowment Payouts, But Death Benefits Stay Tax-Free:  Taxes may be due on the gain of the endowed amount. Taxes are paid on the excess of the paid out amount over the total premiums paid over the years. On death, of course, the policy pay out is generally tax free.

Unsure What Happened to the Policy? Call Us to Review It—and Explore Smarter Options for Yours:  Call us at 760-436-8832 to look over the policy and determine whether it really was canceled and what happened to the cash value, if any? And for our other readers, call us to assist in determining what the goal for the existing policy should be or whether it can be cashed in.