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The primary reason to give an authentication credential -- not just a password, but any authentication credential -- an expiration date is to limit the amount of time a lost, stolen, or forged credential can be used by someone else.
If a membership card expires after a year, then if someone steals that card he can at most get a year's worth of benefit out of it. This becomes less important when the credential contains a biometric -- even a photograph -- or is verified online.
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Enterprises waste money and user attention on things that don't matter, often just to satisfy an auditor so they can move on to their next tasks.
But the expiration date does mean that a forgery is only good for a limited length of time. If a hacker gets your password either by guessing or stealing it, he can access your network as long as your password is valid.
If you have to update your password every quarter, that significantly limits the utility of that password to the attacker. It assumes a passive attacker, one who will eavesdrop over time without alerting you that he's there.
And write your passwords down, or use a program like Password Safe. EDITED TO ADD (11/14): Microsoft Research says the same thing.
"The Security of Modern Password Expiration: An Algorithmic Framework and Empirical Analysis." Tags: authentication, computer security, essays, passwords Posted on November 11, 2010 at AM • 94 Comments • November 11, 2010 AM About the first remark, that people will take easy-to-remember, easy-to-guess passwords: I always use the same hard password where the last character changes.