Living On The Edge: Turn Age 100 And Your Life Insurance Could Die Before You
World War II veteran Dr. Walter Scott, who risked his life landing on Omaha Beach in 1944, could have another major battle to fight, or at least his heirs will. As Scott nears the 100-year age mark, he wants to know whether the $1 million in life insurance he purchased from German insurance giant Allianz is still intact and has value.
It’s a problem that could affect many older life insurance policyholders. “Many forms of permanent life insurance issued prior to 2004 have maturing dates of 100,” explains Michael Lovendusky, a general counsel at the American Council of Life Insurers (ACLI), which represents the industry. “That’s because few people reached 100 when the policies were issued.”
The age 100 maturity date means the policy expires and coverage ends when the insured person turns 100. One possible result is that the policyholder (and their heirs) get nothing, despite decades of paying into the policy.
But times change, and now people tend to live longer. The U.S. Census Bureau estimated there were 94,000 “centenarians” in 2018, and now there are probably closer to a hundred thousand.
Life insurance policies that appeared to be perfectly adequate when purchased decades ago are now causing financial panic, as they expire when the insured person reaches age 100. This financial conundrum affects those who bought supposedly permanent life insurance policies long ago—as opposed to temporary term life insurance policies—and now want their children, grandchildren or even great-grandchildren to collect the payouts.
The situation is an embarrassment for life insurers that don’t want to be seen as stiffing deserving elderly customers who did nothing wrong and paid their premiums on time.
A Fix-It Patch
Regulators and the life insurance industry stuck a fix-it patch on the age-100 problem in 2004 by updating the mortality tables used.
Mortality tables help insurers calculate the probability of death for life insurance applicants. The yearly “probabilities” of death tables were increased from a maximum age of 100 to age 121, when even most seniors agree they won’t be around.
The extended life expectancy tables had a silver lining for both sides. “It’s one reason why premiums for recently issued policies tend to be lower than ever,” Lovendusky says.
But this doesn’t help people like Dr. Scott, a distinguished radiation oncologist who bought his Allianz “Generation Planner” policies just before the changeover in the industry’s mortality tables in 2004. At that time the agent failed to mention the century age cutoff, according to Scott’s tax lawyer Kenneth Wheeler. When Wheeler noticed this and brought it to the agent’s attention, the agent assured him that “the policy would continue the death benefit past age 100 so long as it is not in danger of lapsing.”
But Dr. Scott and his family have their doubts, since the agent who sold him the policies went to jail for stealing premiums from other customers. This leaves Scott and Wheeler “seeking clarification” from Allianz as to what will happen to the $1 million payout. Dr. Scott hired a second attorney, Chris Vernon, who says he’s prepared to take Allianz to court if the issue isn’t resolved this year when Scott turns 100 in November.
Allianz says it “reached out to Dr. Scott to discuss potential resolutions given the specific circumstances of his case,” and that the maximum coverage age was disclosed in the contract and subsequent communications.
Show Some MERcy
Barry Flagg, the founder of insurance research firm Veralytic, says it should be a simple fix.
“Many insurers, in addition to updating their mortality tables beyond age 100, have added a Maturity Extension Rider (MER) to existing policies issued long ago to extend their coverage,” says Flagg. And, since insurers have internal policy charges for the costs needed to pay all death benefits, the life insurance company doesn’t lose money by extending the policy, he adds.
Flagg notes that despite this there are a number of lawsuits being litigated related to the age 100 problem. The most prominent plaintiff was German refugee Gary Lebbin, who came to the U.S. to escape Nazi persecution, bought $3.2 million worth of life insurance from a unit of Transamerica many years ago, and turned 100 in 2017.
The Transamerica unit told Lebbin it couldn’t change the terms of the contract, according to The Wall Street Journal, but offered to pay him the “cash value” of the policy when he reached the century mark. Lebbin died in 2020 and his heirs are still pursuing a settlement in court, according to published reports. Transamerica did not return an email seeking comment on the case.
Tax and inheritance experts point out problems with this solution. The first: Acquiring that much “cash value” at age 100 defeats the purpose of life insurance, which is to provide a tax-free benefit for heirs. Instead, if money goes back to the policyholder, it could create a monstrous “taxable event” for the 100-year-old since the money is going to the person who put it in and is now involuntarily being forced to take it out, says Joseph Belth, a 91-year-old retired professor from the University of Indiana who blogs on insurance.
The second problem, and it’s even scarier: What if there is little or no “cash value” inside that policy? Many universal life insurance policies, such as the type Dr. Scott purchased, are based on stock or bond market indices and the cash values in them can decline if either of those markets perform poorly during certain years.
In some instances, a market index decline has forced insurance policy owners to save their policies by paying additional premiums or lose the coverage altogether. The Center for Economic Justice, in fact, issued a warning last year to consumers about buying these types of complex universal life insurance policies.
Living Too Long May Not Pay Off
If a person with one of these problematic policies dies before age 100, then the entire amount of the original policy is paid as planned. But living too long means the policy could be worth only a small amount or nothing at all.
If all this sounds convoluted, it is, particularly to someone approaching the end of their life who may be in ill health. The ACLI’s Lovendusky recommends that “policyholders . . . approaching their [policy’s] maturity age should consult with a financial advisor.”
Dr. Scott’s lawyer, Chris Vernon, says Scott should have received the right advice when he bought the policy in 2004, but he didn’t. “That’s because the insurance industry is based on sales rather than advice,” says Vernon. By the time the policyholder turns 100 it may be too late to solve the situation.
“The age 100 problem is often solvable either by adding a Maturity Extension Rider to the existing policy or by exchanging to a new policy with lower costs and a longer maturity,” says Flagg.