Policy Maturity Risk: Taxable Income at Age 100 or 121

While Permanent Life Insurance is designed to last a lifetime, the policy contract has a defined **Maturity Date** (historically age 100, now often 120 or 121). If the insured lives to this age, the policy terminates and can trigger a significant, unexpected tax liability.

The Taxable Event

At maturity, the insurance company pays the policy owner the cash value of the policy. The IRS does not treat this as a tax-free death benefit. Instead, the payout is handled as follows:

$$ \text{Taxable Income} = \text{Cash Value Payout} – \text{Total Premiums Paid (Cost Basis)} $$

The difference is taxed as ordinary income in the year of maturity. For policies started long ago, this gain can be substantial.

Mitigating Maturity Risk

Most modern policies mature at age 120 or 121, reducing the risk. However, older policies should be reviewed, and options like a 1035 exchange to a newer policy or a partial surrender before maturity should be considered to manage the future tax event.

Disclaimer: This content is for informational purposes only and is not financial or legal advice. Consult a tax professional regarding maturity risk if your policy is approaching age 90 or above.