Wednesday, February 24, 2021

No. 410: The Age 100 Problem Remains Alive and Well

My first article about the age 100 problem in cash-value life insurance was in the January 2001 issue of The Insurance Forum, my monthly newsletter that preceded this blog site. My first blog post on the subject was No. 141 (February 1, 2016).

The Age 100 Problem
The age 100 problem stems from the fact that cash-value life insurance policies are often sold as "permanent life insurance," "whole life insurance," or some other expression falsely suggesting that the life insurance protection will last for the insured's entire life. In fact, however, the protection lasts only until the policy's "terminal age." Today, many millions of cash-value life insurance policies are in force in the United States with a terminal age of 100. Thus the "whole life" policy is actually an endowment at age 100. Furthermore, cash-value life insurance policies are often sold with heavy emphasis on the facts that the "inside interest" is income-tax deferred and the death benefit is income-tax exempt.

Extended Maturity Riders
In No. 226 (July 20, 2017), I reported that some (but not all) companies had begun offering extended maturity riders (EMRs) to universal life policies. Here is language describing the EMR offered by Principal Life Insurance Company:
If the insured reaches the stated maturity age, maturity is extended to the date of his or her death. The rider is automatically added to policies in states where approved, and there is no charge for the rider. There will be no charges during the maturity extension period. However, loan interest will continue to be charged. No additional premium payments, other than loan payments, will be allowed.
At the time I was not aware of any companies offering EMRs on traditional whole life policies. Nor am I aware of any such offers today.

A New Mortality Table
As mentioned earlier, millions of policies now in effect are based on a mortality table that has a terminal age of 100. However, recent policies are based on a new mortality table that has a terminal age of 121. I have often asked, but no actuary has ever explained to me why it is impossible to issue a policy based on a mortality table that has no terminal age.

A 2018 Survey
In No. 277 (July 17, 2018), I reported on the results of a survey I conducted about the age 100 problem. I wrote to the chief executives of 22 life insurance companies asking some important questions about the age 100 problem. Nine of the companies acknowledged receipt of the survey in at least some fashion. However, some of the responses provided little or no information. I showed in detail the disappointing responses to the survey.

A Recent Email
Recently I received, out of the blue, an email from an individual with a family member who survived to age 100. The family member received a check for the face amount. Later the family member was hit with huge bills for federal and state income taxes, as well as penalties. Normally I would identify the company and provide other details. In this instance, however, I am choosing to protect the privacy of the individual and the family.

General Observations
Over the 20 years that I have been writing about the age 100 problem, it has become clear that life insurance officials are reluctant to discuss the problem. I think the reason is they fear that publicity about the problem might endanger the highly favorable income tax treatment of cash-value life insurance. Although there have been important developments, such as EMRs, progress has been slow. For example, no one has ever responded to the idea of using a 1035 exchange to replace a policy based on a mortality table containing a terminal age of 100 with a policy based on a mortality table containing a terminal age of 121. I would welcome comments from readers about the age 100 problem. Please send an email to