When you start researching life insurance, the variety of different types of insurance, and the different words insurance providers use to describe them can get confusing. However, once you break it down and learn the key components, such as terms, cash value and maturity, everything gets a bit clearer. In this article, we’ll explain what life insurance terms and maturity mean, and help you make the best choices for your family’s future.

What is a Life Insurance Term?

A life insurance term is unique to term life insurance policies — it’s the length of time during which your policy is active. When you buy term life insurance, you choose how long you want the coverage to last. The most common term lengths people choose are usually 10, 20 or 30 years. If you pass away during the term, the insurance company will pay a death benefit to the people you name in your life insurance policy, such as your spouse or children.

You can think of a life insurance term like a lease on an apartment or car. As long as you make payments, you’re covered for a set amount of time. When the term ends, so does your coverage. This means that if you still want life insurance coverage after the end of the term, you might need to renew the policy or buy a new one.

Permanent life insurance is different in this regard from term life insurance. Term life insurance covers you for a specific period, while permanent life insurance lasts your entire life as long as you keep paying the premiums. Because term life insurance covers a shorter time, the monthly premiums are usually much cheaper. This makes it a popular choice for many families who want more affordable coverage for a set period of time, for example until their children grow up.

It’s important to plan carefully when picking the right term for your life insurance. Some policies let you renew once your policy expires, but the cost might go up since you will be older.

What is Life Insurance Maturity?

Policy maturity happens when a life insurance policy reaches the end of its term, the insured person dies, or when the insured person reaches a certain age specified in the policy. If you have a permanent life insurance policy and you reach an age specified in the policy, the policy might pay out a sum of money to you.

Term vs Permanent Life Insurance Maturity

When your life insurance policy matures, several things can happen, depending on the type of insurance you have. With permanent life insurance, If you’re still alive when the policy matures, the insurance company may pay you the cash value or the death benefit amount. This means you receive a lump sum of money directly. However, in the case that your policy matures before your death, your beneficiaries may no longer receive the death benefit. This is why many permanent life insurance policies now have terms of 120 years.

Permanent life insurance is meant to cover you for your entire life as long as you pay the premiums. These policies will build cash value over time, which you may be able to borrow against or withdraw. The maturity age of permanent policies will usually be based on average life expectancy statistics.

If you have a whole life insurance policy that matures when you turn 100 years old and you reach that age, the insurer might pay you the full cash value. Receiving a payout when a policy matures might have tax implications. If the amount you receive is more than what you’ve paid in premiums, you might owe taxes on the gain. Talk to a tax professional to see how this could affect your financial planning.

In some cases, especially when you have term life insurance, the policy simply ends when it matures. This is sometimes called policy expiration instead of maturity. Generally, if you outlive the term, there won’t be any payout, you will stop paying premiums and the coverage will stop unless you decide to renew or convert the policy.

Some term life insurance policies allow you to renew for another term or convert to a permanent policy at that point. This option can be helpful if you still need coverage but want to adjust the type or length of your insurance. It’s important to check your policy details to understand your options when the term ends.

Key Life Insurance Terms to Know

If you’ve ever read about life insurance you’ve probably heard a lot of insurance-specific terms such as cash value or death benefits. Here’s what these different parts of life insurance mean and how they work.

Premiums

Premiums are the payments you make to keep your life insurance policy active. You can think of premiums like any of the other regular bills you pay, such as your phone or electricity bills. How much your premiums will cost is determined by your insurance provider when you sign up for a policy. That monthly amount will usually remain the same for the rest of your life or the life insurance term, no matter what policy you have.

Your insurance provider will calculate how much your premiums will be based on several factors, including your age, health, lifestyle and the amount of coverage you choose. Younger people often pay lower premiums because they’re considered lower risk, while older individuals or those with health issues might pay more. This is why locking in an insurance policy while you’re relatively young may be a good idea.

You can usually choose how often you pay your premiums — monthly, quarterly or annually. It’s important to pay these premiums on time. If you miss payments, your policy could lapse, meaning you would no longer have coverage. Some policies may offer a grace period, but it’s best not to rely on that.

Death Benefit

The death benefit is the amount of money the insurance company agrees to pay to your beneficiaries if you pass away while the policy is active. This money can provide financial support to your loved ones, helping them cover expenses like funeral costs, mortgage payments, education expenses, or daily living costs.

When you set up your life insurance policy, you will pick who your beneficiaries are. These could be family members, friends, or even a charity. The death benefit is usually paid out as a lump sum and is generally tax-free, meaning your beneficiaries will receive the full amount. This money can be a crucial safety net for family members during a difficult time, especially if you are the primary earner in your family.

Cash Value

Cash value is a feature unique to permanent life insurance policies. In addition to providing a death benefit, these policies also build cash value over time. A portion of the premiums you pay goes into this cash value account, which grows on a tax-deferred basis. This means you don’t pay taxes on the earnings as they accumulate.

Think of the cash value as a savings component within your life insurance policy. Over the years, as you continue to make premium payments, the cash value increases. You can access this money while you’re still alive. You might use it to help pay for a child’s education, supplement your retirement income, or cover an emergency expense.

One important thing to note is that in most permanent policies your cash value will not be passed on to your beneficiaries upon your death. Even if your cash value is significantly larger than the death benefit, your beneficiaries will not be able to receive more than the death benefit. If your cash value is large enough that withdrawing from it will not affect the death benefit, it may be a good idea to move that money into other investments.

There are a few ways you can access the cash value:

Loans: You can borrow against the cash value, using it as collateral. Keep in mind that interest will be charged on the loan, and if it’s not repaid, it will reduce the death benefit your beneficiaries receive.

Withdrawals: You can withdraw some of the cash value. However, withdrawals might reduce the death benefit and could have tax implications if the amount exceeds what you’ve paid into the policy.

Surrender: If you decide you no longer need the policy, you can surrender it and receive the cash value minus any surrender charges. This means you give up the death benefit, and the policy ends.

Maturity Options and Payouts

When a life insurance policy reaches maturity, you or your beneficiaries may be able to choose between taking the payout as a lump sum or as annuity payments.

Choosing a lump sum means you receive the entire payout at once. This gives immediate access to all the funds, which can be helpful for those with significant expenses. For example, the lump sum could be used to pay off a mortgage, invest in a business, or cover medical or funeral costs.

Opting for annuity payments means the insurance company will pay a set amount of money at regular intervals, such as monthly or annually. This provides a steady income stream over time, which can be helpful when budgeting or planning for the future. In some cases, the rest of the death benefit may accrue interest while annuity payments are being made, which can increase the total payout overall.

Surrendering a Policy

Another thing to consider is whether to surrender your policy before it matures. Surrendering your policy means canceling it before it reaches maturity. In this case, you receive the cash surrender value, which is the cash value accumulated in the policy minus any surrender charges or fees. This option might be attractive if you need access to funds immediately or no longer require life insurance coverage.

For instance, suppose you’ve accumulated a substantial cash value in your permanent life insurance policy but now have other means to support your loved ones. Surrendering the policy allows you to access that money now and use it for other investments or however you see fit. Surrendering ends your coverage, so your beneficiaries won’t receive a death benefit if you pass away later.

Keeping the policy until it matures means you or your beneficiaries receive the full maturity payout or death benefit as outlined in your policy agreement. If you don’t need the money now, this may be a better option, since the total payout may be higher. It can be a good idea to consult with a financial advisor to weigh the pros and cons based on your specific situation.

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Taxes on Life Insurance Payouts

Receiving money from a matured life insurance policy can have tax consequences, so it’s important to understand how this might affect you.

If you receive a lump sum payout upon maturity, the portion of the money that exceeds the total premiums you’ve paid into the policy may be subject to income tax. For example, if you’ve paid $50,000 in premiums over the life of the policy and receive a $70,000 payout, the $20,000 gain might be taxable. If you surrender your policy and receive the cash surrender value, any amount that exceeds what you’ve paid in premiums could also be considered taxable income.

Annuity payments often consist of two parts: a return of the premiums you’ve paid (which is generally not taxable) and the interest or earnings on those premiums (which may be taxable). Each payment may include a taxable portion that you or your beneficiaries will need to report on your income tax returns.

Tax laws can be complex and will vary depending on where you live and your individual circumstances. A tax professional or financial advisor can help you plan accordingly and potentially minimize your tax burden.

Factors That Influence Your Life Insurance Policy

Your age and health at the time you purchase a life insurance policy play a big role in determining the terms of your coverage. When you’re younger and in good health, you have more options available to you. Insurance companies consider younger individuals to be lower risk, so they often offer policies with longer terms and lower rates.

Your health also impacts the type of policy you can obtain. If you have certain health conditions, the insurer might adjust the terms of the policy, or they might offer a policy with higher premiums. In some cases, health issues could limit your options to policies that expire earlier or provide different benefits.

No Medical Exam Policies

You might have heard about life insurance options that don’t require a medical exam. These policies can make obtaining coverage simpler and quicker, but will usually cost more in premiums.

No medical exam policies are life insurance plans where you don’t have to undergo a physical examination to qualify. Instead of scheduling an exam, you’ll fill out a health questionnaire. The insurance company uses your answers, along with information about your age and lifestyle, to determine if they can offer you coverage.

There are a couple of main types of no-medical exam policies. One is called simplified issue life insurance. With this option, you answer detailed health questions, and the insurer might review your medical records or prescription history. Since there’s no exam, the approval process can be faster.

Another type is guaranteed issue life insurance. This option doesn’t require a medical exam or health questions. As long as you meet the age requirements, you’ll probably be accepted. Unfortunately, since the insurer has less information about your health, these policies often come with higher premiums and lower coverage amounts.

No medical policies offer several advantages. Without the need for a medical exam, you can get approved more quickly — sometimes within days or even hours. This can be helpful if you’re in a hurry to get coverage. Also, skipping the exam means you don’t have to deal with needles or doctor’s appointments. Sometimes people have health issues that might make it hard to qualify for traditional life insurance, in which case no medical exam policies are the only options available to them.

While these policies can be more convenient, there are some important factors to think about. Coverage amounts available with these policies are often lower than those with traditional life insurance. Some guaranteed issue policies also have a waiting period before the full death benefit is available. If you pass away during this time, your beneficiaries might receive only a portion of the death benefit or a refund of the premiums paid.

What Happens When You Miss Payments?

If you miss a premium payment, most insurance companies offer a grace period during which you can make the payment without losing coverage. However, if you fail to pay within this period, your policy might lapse, meaning the coverage will end. In the case of term life insurance, a lapsed policy typically cannot be reinstated without reapplying, which could involve a new medical exam and higher premiums.

For permanent life insurance policies, missing payments can also affect the cash value component. Some policies allow you to use the accumulated cash value to cover premium payments if you miss them. This can help keep the policy active, but it can end up reducing the cash value and death benefit over time.

In some cases, insurance companies offer options to adjust premium payments or modify the policy to prevent it from lapsing. It’s important to communicate with your insurer if you’re facing financial difficulties. They might offer solutions such as changing the payment schedule, reducing the death benefit to lower premiums or converting to a different type of policy.

How to Choose the Right Life Insurance Term

When you’re deciding on a life insurance term length, it can be helpful to consider the responsibilities you anticipate having in the future. Think about how long your loved ones might rely on your income. If you have a spouse, children, or other family members who rely on you financially, their future should influence your decision. Estimate how long they might need support. For example, if you have young children, you might want to choose a term that lasts until they become financially independent so that their expenses will be covered until then. Also, think ahead to consider any future dependents you might have.

Think about what you want your life insurance policy to accomplish. Are you aiming to replace your income, pay off debts, or fund your children’s education? If you’re paying off a mortgage or other long-term debts, it’s probably a good idea to select a term that covers the duration of those obligations.

If you’re early in your career with many years of earnings ahead, a longer term might provide the security your family needs. On the other hand, if you’re closer to retirement and already have a chunk of savings put away, a shorter term could be sufficient.

Consider your health and age as well. Life insurance premiums are typically lower when you’re younger and healthier. Locking in a longer term at a younger age can save you money in the long run.

Longer terms can have higher premiums, but they offer extended protection. Shorter terms cost less but may require you to reapply later, potentially at higher rates due to age or health changes.

It can be a good practice to review your policy periodically to check if it still meets your needs. As your circumstances evolve — you pay off your mortgage, children leave home or your financial situation changes — you might find that adjusting your coverage makes sense.

Next Steps

Navigating life insurance becomes much simpler when you understand its key components. Now that you know about terms, maturity, premiums, death benefits, and cash value, you can look for the right policy for you — one that will fit your specific needs and provide security for your loved ones.

At its core, life insurance is a way to ensure that those you care about are protected no matter what happens. By taking the time to understand your options and making thoughtful choices, you can provide peace of mind for yourself and a safety net for your family.

Here, at Fidelity Life, we’re committed to supporting you each step of the way, providing different insurance options for every age and stage. Start your quote online or give one of our agents a call at 855-746-6461 to find the right policy for you.

At Fidelity Life, our goal is to make life insurance simple, affordable, and understandable for everyday families. This content is intended for educational purposes only. Each post is carefully fact-checked, reviewed, and updated regularly to ensure the information is as relevant as possible. We encourage you to speak with your insurance representative if you have additional questions and make sure you read your policy contract to fully understand your coverage.