What Is Adjustable Life Insurance? – Forbes Advisor

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Most life insurance policies have a fixed death benefit and premium payments. Adjustable life insurance allows you to modify the death benefit and premium payments over the course of the policy. This type of life insurance may be a good option if you want the greatest amount of control over your policy.

Understanding an Adjustable Life Insurance Policy

Adjustable life insurance—also known as universal life insurance—is a type of permanent life insurance policy that:

  • Can last your entire life (depending on the policy).
  • Allows you to adjust your premiums, within certain limits. You can pay the minimum premium due or choose to pay more.
  • Allows you to adjust the death benefit by paying more in premiums.
  • Comes with a cash value account that can accumulate interest. You can use the cash value to pay premiums, as long as you maintain a minimum cash value amount so the policy doesn’t lapse.

How cash value works

Adjustable life insurance policies come with a cash value account that typically acts as a savings or investment account. These accounts can accumulate interest or investment returns and the cash value can be used to:

  • Pay premiums. Cash value accounts typically take several years to build up enough cash to use. Once enough money is in the account, you can use that cash to pay your premiums.
  • Borrow. You can borrow against the cash value of your universal life insurance policy. These loans are typically at a lower interest than loans from a bank. However, if you fail to pay them back, the loan amount and interest will be subtracted from your death benefit.
  • Make a withdrawal. You may be able to withdraw money from the cash value account as long as it is less than the “surrender value” of your policy. If you make a withdrawal, you may be charged a fee. Making a withdrawal will also reduce the life insurance payout to your beneficiaries.

If there is money in the cash value account when you pass away, it typically reverts back to the life insurance company. Some policies allow you to add the cash value to your death benefit amount, but expect to pay more for this feature.

Adjusting your life insurance

With an adjustable life insurance policy, the policyholder can modify the following components.

  • Death benefit: With an adjustable life insurance policy, you can modify how much money will be paid out to your life insurance beneficiaries when the insured person passes away. With many other types of life insurance policies, the death benefit is locked in when the policy is purchased and cannot be changed.
  • Premium payments: You can lower your premium payments as long as you have enough money in your cash value account to pay for the difference. Premium payments will also change in relation to the death benefit. For instance, if you increase your death benefit, your premium payments will also increase.

Is an Adjustable Life Insurance Policy Right for Me?

An adjustable life insurance policy might be beneficial if you have changing needs.

For example, consider a policyholder who has another child and wants to increase their death benefit to account for the needs of this new family member. With adjustable life insurance, the policyholder could increase their death benefit—and as a result, they’d pay a higher premium every month.

When determining whether or not adjustable life insurance is right for you, it can be helpful to think about your goals. What are you looking for in a life insurance policy?

Adjustable Life Insurance Pros and Cons

Is an adjustable life the best life insurance policy for you? You may want to consider the following pros and cons.

Pros:

  • The premiums and death benefit can be modified over the course of the policy, providing greater flexibility than most life insurance policies.
  • Comes with a cash value account that can be borrowed against or used to pay premiums.
  • Earns returns and/or interest on your cash value account.

Cons:

  • The cash value account may not be as lucrative as other investment opportunities.
  • More expensive than term life insurance.

How to Get an Adjustable Life Insurance Policy

If you’re interested in buying an adjustable life insurance policy, you may want to follow these steps.

  1. Find a life insurance company that offers adjustable life insurance policies. A licensed, independent life insurance agent can help you find a company that fits your needs.
  2. Get a quote. Life insurance companies typically base quotes your age, gender and health. The amount of your death benefit will also affect your premium. Use our life insurance calculator to determine how much coverage you need.
  3. Apply for a policy. A life insurance application typically includes numerous questions about your current and past health, family health history, prescriptions taken and more.
  4. Complete a medical exam. A life insurance medical exam is typically required to help the insurer understand your level of health.
  5. Make your decision. The insurance company will give you your final life insurance quote after it evaluates all the information—a process called underwriting. You can then decide whether to proceed.

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