Adjustable Life Insurance: The Policy With Flexible Premiums and Coverage

Life insurance comes in many forms, each with their own unique features and level of flexibility. One of the most adaptable types of life insurance is adjustable life, also known as universal life. This policy gives policyholders significant control to change their coverage, premiums, and other factors over time.

What is Adjustable Life Insurance?

Adjustable life insurance, interchangeable with universal life insurance, is a form of permanent life insurance distinguished by its flexibility. Key features include:

• Adjustable premiums – Policyholders can raise or lower their premium payments within certain limits, unlike whole life which has fixed premiums.

• Adjustable death benefit – The death benefit can be increased or decreased as needs change.

• Cash value account – An interest-bearing cash account that grows over time provides liquidity.

• Potential lifetime coverage – Policies can last a lifetime as long as underlying costs are paid.

Adjustable life combines the lifetime coverage of permanent life insurance with the ability to modify the policy as needs shift. Premiums, death benefit, and other factors can be changed.

Flexible Premium Payments

One of the biggest advantages of adjustable life insurance is the ability to change your premium payments. Here are some key points about adjustable premiums:

• Pay More in Peak Earning Years – Increase premiums while income is high to build cash value faster.

• Pay Less When Funds Are Tight – Lower premiums during tougher financial periods to keep insurance intact.

• Payments Can Vary Year to Year – Adjust premiums up and down as your budget and goals evolve.

• Cover At Least Minimum Cost – Reduce premiums to an insurer-set minimum cost to keep policy active.

• Prevent Lapse – Boost premiums again if needed to avoid policy termination.

As long as underlying insurance costs are satisfied, an adjustable life policyholder enjoys great flexibility in timing and adjusting premium amounts to suit their financial situation.

Changing the Death Benefit

In addition to adjustable premiums, universal life policies allow changes to the death benefit with the right planning:

• Increase for Life Events – Raise death benefit after marriage, birth of a child, new mortgage, etc.

• Decrease When Needs Decline – Reduce coverage as kids become independent or debt is paid off.

• Review Frequently – Reevaluate life insurance needs at least annually.

• Added Underwriting Sometimes Needed – Insurer may require new medical exam and approval to significantly increase death benefit.

Carefully reviewing your life insurance needs and aligning the death benefit to provide adequate protection for dependents is key. An adjustable policy makes it easier to modify coverage.

Growing an Interest-Bearing Cash Value Fund

A major difference between adjustable life and term life insurance is the interest-bearing cash value account. This functions like a saving account within the policy.

• As premiums are paid, a portion goes to insurance costs and the remainder into cash value.

• Interest is credited to cash value funds based on an insurer-set rate.

• Over time, the cash value grows and can be used for various purposes like paying future premiums.

• Cash value earns relatively modest interest compared to aggressive investing, but does provide tax-advantaged growth.

The cash value gives adjustable life policies an extra layer of flexibility and options for policyholders. Using cash value to pay premiums in later years can be an efficient strategy.

Pros and Cons of Adjustable Life Insurance

Adjustable life insurance offers unrivaled tailoring of coverage, but it’s not necessarily the best choice for every buyer. Consider the key pros and cons:

Advantages

• Adjust coverage available as needs change
• Vary premiums based on budget
• Interest-bearing cash value for savings
• Potential lifelong coverage

Disadvantages

• More expensive than term life insurance
• Returns on cash value typically modest
• More complex to manage over time
• Lapse risk if costs not covered

For those who will benefit from flexibility and want permanent lifetime coverage, adjustable policies offer advantages. But they require diligent management.

Alternatives to Adjustable Life Insurance

Adjustable life insurance isn’t the only option. Here are some other types of life insurance to consider:

• Whole Life – Offers guaranteed lifetime coverage with fixed premiums, but less flexibility.

• Term Life – Pure insurance without cash value, generally much cheaper.

• Variable Life – Permanent insurance where cash value is invested in securities.

• Indexed Universal Life – Interest earnings on cash value tied to market indexes.

Each type serves different needs. Term life works for temporary protection, while whole life provides lifelong coverage with predictable costs. Adjustable life strikes a balance with flexibility plus guaranteed coverage.

Is Adjustable Life Right for You?

There are a few key factors to weigh when deciding if adjustable life insurance aligns with your needs and preferences:

• Do you want lifelong insurance coverage? Adjustable life is permanent.

• Is flexibility on premiums and death benefit appealing? This policy allows adjustments.

• Are you comfortable actively managing your policy over time? Adjustable life requires regular oversight.

• Do you expect changing insurance needs? Frequent adjustments may make sense.

• Will you take advantage of the cash value savings? This unique feature may be useful.

Adjustable life insurance offers unparalleled lifetime protection paired with adjustability to match evolving needs and budget realities. For those who value flexibility, adjustable life can be an excellent choice. But it does require diligent management.

Frequently Asked Questions

What is the difference between adjustable life and whole life insurance?

Whole life insurance offers guaranteed lifetime coverage but has fixed premiums. Adjustable life allows the policyholder to change the premium payments, death benefit, and cash value. It is much more flexible.

Can you lose your adjustable life insurance policy?

Yes, adjustable life policies can lapse if the underlying insurance costs are not paid. If premiums are lowered too much or stopped, the policy can terminate. Monitoring cash value and costs is important.

Does adjustable life insurance build cash value?

Yes, adjustable life includes an interest-bearing cash value account that grows over time as premiums are paid in. This cash can be accessed via withdrawals or policy loans.

Is adjustable life insurance more expensive?

Adjustable life insurance tends to cost more than term life insurance since it has lifetime coverage, but less than whole life since premiums can be adjusted. The flexibility adds some cost.

What are the interest rates on adjustable life insurance cash value?

Interest rates earned on the cash value account in adjustable life insurance are typically fairly modest, such as 1% – 3% annually. Returns are guaranteed but conservative relative to aggressive equity investing.

The Bottom Line

Adjustable life insurance stands out for its dual qualities of permanent lifetime coverage paired with exceptional flexibility to modify the policy as needs change. For those who want lasting protection along with the ability to adjust their premiums, death benefit, and other factors, adjustable life can be an excellent choice. But the flexibility requires diligent management of the policy over time.