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Adjustable life insurance

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Adjustable life insurance is a form of permanent life insurance. Unlike a term policy, adjustable life insurance remains in effect for the rest of your life, as long as premiums are paid. However, policyholders are typically able to adjust their premium payments, cash value amount and even their death benefit. Adjustable life insurance is also often called universal life insurance. You may want to dive deeper into adjustable life policies before determining if one is right for you.

What is adjustable life insurance?

As the name suggests, adjustable life insurance allows you some flexibility that you would not find with other policy types. You can change the premium, which will also affect the cash value contributions, within the policy and even tweak the death benefit. Because of this, adjustable life insurance is often referred to as flexible premium adjustable life insurance or adjustable term life insurance.

Adjustable life is a type of permanent life insurance, and as such, it continues for as long as you pay the premiums — in most cases, until your death. At that time, your beneficiaries receive a payout known as a death benefit.

Unlike term insurance, there is no end date to adjustable life insurance, and the policy builds up a cash value that represents a portion of your premium that is placed in a savings vehicle by your insurer. If you decide you no longer need insurance and surrender your policy, you will receive a portion of that cash value, minus administrative fees.

How does adjustable life insurance work?

When you purchase an adjustable life policy, premiums are determined based on your age, health and other risk-determining factors. By continuously paying into an adjustable life insurance, you are assured a death benefit to be paid to the beneficiary of your choice. In addition, you gain a portion that your insurer invests on your behalf, earning you a small amount of interest. This is called the cash value.

Flexible premiums in adjustable life insurance

Adjustable life insurance gives you the option to handle your premium payments and your cash value in a few different ways.

As the cash value component grows, you can choose to put it towards paying your premiums. This can be useful if your employment lapses, as you could use the cash value to sustain payments in the interim. However, if the cash value drops to zero and you cannot pay the premiums, you would have to surrender the policy. You should also keep in mind that borrowing against your cash value reduces the death benefit your beneficiaries would receive if you do not pay it back.

You can also borrow money from your insurer using the cash value component as collateral, which some individuals prefer to borrowing money from a bank. Depending on your insurer and circumstances, the interest rate your insurance company gives you may be lower than a bank’s.

Flexible death benefits in adjustable life insurance

Adjustable life insurance also gives you the option to adjust your death benefit amount. With other types of life insurance, the face value of your policy is fixed. With adjustable life insurance, however, you can raise and lower the death benefit as you need to.

For example, if you’ve recently had a child, you may want to increase your death benefit to offer your family more financial protection if you pass away. If you have paid off your mortgage or other significant debt, you might no longer need the same level of life insurance coverage, since you wouldn’t have to worry about your loved ones covering that debt repayment if you passed away. In that case, you may consider lowering your death benefit level.

Who should consider adjustable life insurance?

Adjustable life policies may be a good choice for anyone who wants more flexibility over their policy. If you predict that your need for a death benefit will change over time, an adjustable life insurance policy allows you to increase or decrease the death benefit as necessary. If you increase the death benefit, you may see a premium increase, but a decrease in the death benefit could effectively reduce your premium.

As a type of permanent insurance, adjustable life may also be a good fit for specific policyholders. If you are the parent or guardian of a person with disabilities and want to ensure that they are cared for throughout their life, you may prefer permanent life insurance to term life insurance because it lasts for the duration of your lifetime, ensuring ongoing protection as long as premiums are paid. Variable life insurance can add another layer of peace of mind by allowing you the flexibility to update your permanent life insurance as needed.

Permanent life insurance may also be worth considering if you are a high-wealth individual looking for ways to diversify your earnings through a range of savings vehicles. A variable adjustable life insurance policy can allow for modest growth in a tax-deferred savings account, and can play a role in a comprehensive strategic financial plan, while also providing flexibility.

Pros and cons of adjustable life insurance policies

Adjustable life insurance policies are not ideal for everyone. If you just need a simple, inexpensive policy that features a death benefit for a period of time when it’s most needed, you may be better served with a term policy.

The main benefit to adjustable rate policies is the flexibility, which makes it easier to negotiate a changing financial landscape while ensuring that your loved ones are provided for in the event of your death. Although they are more expensive than term policies, this may be offset by the advantages over the long term.

Pro Con
Allow you to account for changes in your financial situation More expensive than term insurance.
Can increase or decrease the death benefit as your circumstances change Modest amount of interest earned: higher rates of return can be found by investing elsewhere
Cash value accumulates over time; can be borrowed from and used to make premium payments
Continued benefits throughout the life of the policyholder, as long as premiums are paid

What is the average value of an adjustable life insurance policy?

The value of an adjustable life insurance policy will vary greatly depending on the amount of death benefit, as well as characteristics of the person who purchased the policy — such as age, health, whether they are a smoker and other factors.

Adjustable life — as a type of permanent insurance — will always cost more than term insurance, which does not have a cash value and is only viable for a defined period of years. For example, CNN estimates that a term policy for $500,000 would cost an average of $430 a year for a 35-year-old man, while a permanent policy for the same amount would be roughly $4,400 annually.

Frequently asked questions

What is the best life insurance company?

The best life insurance company varies for everyone depending on their policy needs, budget and preferences. To find the best life insurance company for you, it may be helpful to speak with an insurance agent who can point you to providers with the right type of policy options for you. From there, you may want to compare life insurance quotes from the best life insurance companies.

Is adjustable life insurance the same thing as universal life insurance?

Yes, adjustable life insurance is another name for universal life insurance. Adjustable life insurance and universal life insurance allow you to use your cash value to pay premiums, and both feature cash value components that are invested at rates that are determined by the insurer. Both types also allow you to adjust the death benefit, although increasing it may increase your premium amount due.

Is adjustable life insurance the cheapest type of insurance I can buy?

No. Term life insurance will almost always be the most inexpensive type of life insurance policy you can buy. Term and permanent are the two major types of life insurance policy, but permanent policies — which are characterized by a cash value component and lack of term limit — are generally five to ten times as expensive as term.

What is the difference between adjustable life and whole life?

Whole life insurance and adjustable life insurance are both forms of permanent life insurance. However, whole life insurance offers less flexibility than adjustable life. While a whole life insurance policy has a fixed premium that you’ll pay for the rest of your life, an adjustable policy lets you alter your premium and death benefit. With whole life, returns on your cash value account are fixed, whereas with adjustable life, returns typically increase as you continue paying into the policy.

Written by
Lizzie Nealon
Insurance Writer
Lizzie Nealon is a former insurance writer for Bankrate. Her favorite part of the job is making home, auto and life insurance digestible for readers so they can prepare for the future.
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Insurance Writer & Editor