Adjustable Life Insurance Explained

Adjustable life insurance policies offer more ways to grow your death benefit amount while remaining flexible enough to help with unexpected expenses that may occur while paying into the policy.
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Adjustable Life Insurance

Written by Brian Greenberg
CEO / Founder & Licensed Insurance Agent

Last updated: November 24th, 2022

Reviewed by Paige Geisler
Licensed Insurance Agent

This individualized approach to permanent life insurance has its drawbacks, but other plan types may not offer the same growth potential as adjustable life insurance.

What Is Adjustable Life Insurance?

Adjustable life insurance lets you change both your premium and the policy’s death benefit to fit your financial needs and goals. The cash value of an adjustable life insurance policy depends on the premiums paid. Your premium is determined by age, location, personal health, and any other factors your insurer considers a risk.

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How Does an Adjustable Life Insurance Policy Work?

It’s important to note the cash value and death benefit of an adjustable life policy are separate figures. While the death benefit can include the cash value of the plan, minus fees, expenses, and taxes, only the cash value can be leveraged if you need emergency funds. The policy will continue for the life of the policyholder unless surrendered early, the cash value reaches zero, or the premiums are unable to be paid.

Does Adjustable Life Insurance Provide Death Benefits?

Adjusting premiums is an often leveraged option for this type of plan, but altering the death benefit is also on the table. Starting a family may lead you to increase your death benefit to better support an additional dependent should you pass away. After paying off home or auto loans, you no longer need as large of a death benefit to settle your debts. Regardless of the type of adjustable life insurance policy, there will always be an available death benefit when the policyholder passes away.

Does Adjustable Life Insurance Offer Flexible Premiums?

The cash value of an adjustable life insurance policy depends on the premiums paid. Premium amounts are determined by age, location, personal health, and savings goals. Premiums can be adjusted up or down to increase the total death benefit more quickly or offer some financial relief. Should you be unable to make any sort of contribution, your premiums can be paid from the cash value.

Who Could Use an Adjustable Life Insurance Policy?

An adjustable life insurance policy is ideal for individuals who need flexible coverage. They may not be sure if they want to start a family or buy a home.

Investors may find clients with large amounts of wealth use adjustable life insurance policies for their guaranteed interest rates, even if they could realize larger gains through other investments. The reason is tax deferment on the cash account and no extreme market volatility. This leaves more for their heirs compared to traditional savings or brokerage accounts.

Is Adjustable Life Insurance the Same as a Universal Policy?

Both adjustable and universal life insurance plans offer the same benefits and features and are often used in place of each other. The defining characteristics of these plans are that the cash value of the policy can be used to cover the cost of premiums while also providing policyholders with earnings.

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What Are the Pros of an Adjustable Life Insurance Policy?

No Set Terms

The timeframe of adjustable life insurance is another variable that can be changed. Since the policy has no predetermined end date, you can choose to continue building the cash value through premiums or surrender the policy early to “cash out” and collect on the gains. The latter can come with additional surrender penalties, depending on the surrender schedule your premiums are subject to.

Emergency Lending Options

Should you run into a lapse of employment or an unexpected increase in monthly expenses, the value in your cash account within the policy can be leveraged to pay your premiums and keep the death benefit active. These same funds can even be borrowed in the form of a loan, which can provide better interest rates compared to a traditional lending product through your bank.

Portfolio Diversity

Shopping around for adjustable life insurance goes beyond comparing rates and premiums, as the cash value of your plan is directly related to the performance of the company’s investments. Choosing a company with strong performance for an adjustable plan could provide you with an additional investment vehicle that comes with a minimum guaranteed rate.

What Are the Cons of an Adjustable Life Insurance Policy?

Higher Premiums

Flexibility in life insurance plans means more control over the policy, but it does come with higher premiums that not everyone can comfortably afford compared to term or whole life policies. A whole or term life policy may be a better fit for someone on a tighter budget who doesn’t need the flexibility of borrowing from the plan.

Limited Gains

From an investment standpoint, adjustable life insurance policies can be a safe option. However, safety comes at the cost of limiting the potential of the funds stored inside. This often leads to investors using this vehicle as a high-interest savings account while taking major investments elsewhere.

Where Can You Purchase an Adjustable Life Insurance Policy?

Adjustable life insurance policies can be found with most life insurance providers, but cash value plans should only be taken out with reputable and high-performing groups to obtain the best return on investment possible.

Take time to go through the offerings of each top company, and read reviews from current customers and family members of policyholders to gain insight into their experience.

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Key Takeaways

Flexible coverage amounts and premium costs make adjustable life insurance popular for those who aren’t sure what their future life and financial goals may be. Plans can often be surrendered early to withdraw premiums, with coverage continuing until the cash value hits zero or premium payments end.

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