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Blended life insurance: 2 policies in 1

Premiums could increase
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Premiums could increase

A major drawback to blended life insurance is the risk that the premium, or the amount you pay for the policy, will increase over time because the dividend being paid is dependent on the current interest rate. With a blended life insurance policy, if interest rates go down or the insurance company is struggling, you may have to pay more to maintain your coverage, says Anthony Steuer, a life insurance analyst in Alameda, Calif., and author of "Questions and Answers on Life Insurance."

Pinkston says he has clients who took out blended life insurance policies 20 years ago, and when interest rates were higher, they were making the same premiums every year. Once interest rates dropped and/or mortality costs increased, they were hit with a higher premium.

What's more, if the insurance company isn't doing well financially, costs can be passed on to the policyholder in a blended life insurance policy, Steuer says.

"With permanent (life), you are paying more money upfront to mitigate the risk," he says. In order to protect yourself from the premium going up, Witt of Witt Actuarial Services suggests paying additional premiums into a blended policy.




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