How long does the coverage normally remain on a limited-pay life policy?
The Benefit Length of Limited Pay Life Insurance:
This question came up after we recently wrote a post about limited pay whole life insurance.
"How long does the coverage normally remain on a limited-pay life policy?"
Limited pay life insurance is a form of whole life that has a payment schedule that lasts less than your entire life but the benefits are projected forever. Or at least until you hit age 100 or age 120 with some newer life insurance policies.
You will often see the by the book answer to this question as "100". Well that answer is mostly true.
Limited pay is a type of whole life insurance. The opposite type of life insurance is called term life. Term life has premium payments and death benefits that only last a limited period of time.
Whole Life = Lasts Forever
Term Life = Lasts for the Term
The differences between limited pay and term life can be quite confusing for many.
Limited Pay = A type of Whole Life Insurance
The short answer to How Long Does the Coverage normally remain on a limited pay life policy is usually until age 100 or until death. However there is a more nuanced version of this. Insurers have steadily been extending out the maximum age of life insurance from 100 to 120 in the last several years. This is due to increased longevity from the American public. Therefore it really depends on the actual life insurance policy.
Another consideration is if the insured or policy owner wishes to cancel the policy at a future time. Depending on the life insurance contract, this may be allowed. If this is the case its possible the insured could cash out the policy or even reduce the face amount.
But in general a limited pay whole life insurance policy is likely to last your entire life, once all of the premium payments are made.
A Better Potential Question:
"How long does the coverage normally remain on a limited pay
whole life policy, assuming all of the yearly premium payments
are made on time?"
The big side note to the question though contains a special consideration. The question may be better properly asked as How long does the coverage normally remain on a limited pay whole life policy, assuming all of the yearly premium payments are made on time? This version of the question is more specific to the true length of the policy because such a high percentage of whole life policies are cancelled before the are fully paid up.
Length of Limited Pay, an Example
Here is an example from a company that I am not appointed with. I am not sure they are even licensed if there are are not licensed in the US, but it is a good public example of the variances that you may see:
A ten or seven year limited pay policy, with a maximum death benefit allowed of $450,000.
"This policy has no defined maturity age. For purposes of projecting values in the proposal software, the proposal is deemed to mature at age 100. The cash value is designed to equal the death benefit at age 100." Therefore this is an instance of there being no maturity date.
Limited Pay Basics, a Review:
Limited pay life insurance is a form of life insurance whose benefits can last forever but who have less payments due than standard whole life insurance. There are numerous options for this type of whole life insurance but some of them include: single pay, seven pay, ten pay, and twenty pay.
Limited pay is an intriguing option for those wanting whole life insurance but are concerned about making payments forever.
Benefit Length - Limited Pay Life:
Limited Pay Life Insurance (once fully paid up) = Lasts for the Rest of your Life
The positives of this form of life insurance are that once you have made all of the higher annual premiums you are done with the payments and your policy should be in force for the rest of your life.
Limited Pay Whole Life vs Term Life:
Term Life = Limited Death Benefit & Limited Yearly Premiums
Limited Pay = Unlimited Time of Death Benefit & Limited Yearly Premiums
A simple example of this may be a 20 year $500,000 term life insurance policy which say is $250 per year. The client makes only 20 yearly $250 premium payments for 20 consecutive years. After those 20 years both the premium payments and death benefit end. This stands in contrast to a limited pay 20 life policy whose death benefit is also $500,000. Due to the nature of the product the yearly premium may be $5,000 per year. The client makes 20 yearly consecutive annual premium payments. After 20 years no further premium payments are due. The $500,000 policy remains in force for the rest of their life. It may last to age 100 or 120 depending on the insurer. And this is why the answer to the question: How long does the coverage normally remain on a limited-pay life policy? is so important.