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.
Table of Contents
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
Brian is the founder and CEO of Insurist and carries Life, Health, and Property & Casualty licenses in all 50 U.S. states. Since 2013, Brian has been a member of Million Dollar Round Table, a designation for the top 1% of financial advisors worldwide. Brian has been featured in Yahoo! Finance, Money.com, Entrepreneur.com, Life Happens, Forbes, MSN, and Good Financial Cents. Brian’s goal is to show customers the best products, the quickest answers to their questions, and provide expert advice.
Paige is an assistant agent for State Farm and is licensed to sell property and casualty, health, and life insurance in Virginia. She handles all different types of insurance and financial services and is currently working on a securities and bonds license. Paige has a degree from Radford University in English and is a certified notary.
