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!
Fortunately, policies issued in the past 10 years or so primarily use the newest 2001 CSO mortality tables, which were extended to a maximum life span of age 121, to reduce the risk of the insured outliving the end of life insurance mortality tables. However, most existing permanent life insurance was issued under “old” mortality tables with a maximum age of 100 (or even age 96), which means most permanent life insurance owners still have to contend with the possibility that they can actually outlive their life insurance… and face the tax consequences that come with it!