Adjustable Life Insurance | Bankrate

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Adjustable life insurance is typically synonymous with universal life insurance and its flexible features. Bankrate’s insurance editorial team explains the characteristics of adjustable life insurance to help you decide if it’s the right policy for your needs.

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 raise or lower the premium as your circumstances change. Because of this, adjustable life insurance is often referred to as flexible premium adjustable life insurance. Additionally, adjustable life insurance gives you the flexibility to increase or decrease the death benefit with your coverage changes. However, note that adjusting these features can affect the cash value contributions within the policy.

Adjustable life is a type of permanent life insurance, and as such, it continues for as long as you pay the premiums, up to a maximum coverage age ranging from 95 to 121. At that time, your beneficiaries receive a payout known as a death benefit.

Unlike term insurance, adjustable life insurance is designed to last your entire life, and the policy builds up a cash value that represents a portion of your premium that is placed in a reserve account by your insurer to earn interest. If you decide you no longer need insurance and surrender your policy, you will receive a portion of that cash value minus administrative fees, surrender fees and any policy loan balance, if applicable.

How does adjustable life insurance work?

When you purchase an adjustable life policy, premiums are determined based on your age, health, lifestyle and other risk-determining factors. As a form of permanent life insurance, adjustable life is designed to provide a guaranteed death benefit to your beneficiaries upon your passing, as long as you pay the premiums on time and keep your policy in good standing. In addition, your policy has a cash value that earns interest based on the interest rate declared by the insurance company. You can access this cash value while alive, if you wish. Doing so can impact the policy’s death benefit, however.

Flexible premiums in adjustable life insurance

Adjustable life insurance gives policyholders the option to pay more in to their policy during times of high income to more quickly accumulate cash value. Alternatively, during times when the budget may be squeezed, policyholders have the option of reducing the amount of premium paid or even skip payments entirely for a certain period of time.

Flexible death benefits in adjustable life insurance

With adjustable life insurance, you may change the death benefit amount if necessary. With most types of life insurance, the death benefit is fixed when you purchase the policy and can’t be changed. With adjustable life, if your circumstances change and you wish for more or less of a death benefit, you can alter the amount of your payout. Note, however, that a large increase in your death benefit will likely result in a change in your premium, and you may also need to undergo additional medical exams before the change is approved.

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 would no longer 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 insurance is worth considering if you want to be able to make decisions throughout the life of your policy so that it remains the best choice for you, no matter how your financial life changes. For example, if you want a fairly high death benefit when your children are young but have less need for a significant payout after they are grown, an adjustable policy allows you to make that change and possibly decrease your premium rate at the same time.

Another type of person who may benefit from adjustable life insurance is someone who is caring for a person with disabilities. You may be looking for a policy that will be in effect throughout your life but with the option to make changes if your situation is altered. In that case, adjustable life insurance can offer you the peace of mind that comes with knowing that your loved one will be financially covered if you are not there to care for them.

Pros and cons of adjustable life insurance policies

Adjustable life insurance policies aren’t the right choice 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. If you’re looking for more out of your life insurance, some of the options that come with adjustable life insurance may be beneficial.

The main benefit of adjustable rate policies is 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 their additional features.

Pros

• Allow you to account for changes in your financial situation
• Can increase or decrease the death benefit as your circumstances change
• Cash value accumulates over time; can be borrowed against or withdrawn from
• Continued benefits throughout the life of the policyholder, as long as premiums are paid

Cons

• Generally more expensive than term insurance
• Modest amount of interest earned: higher rates of return can be found in traditional investment products

Comparing term, whole and adjustable life insurance

Life insurance can be complicated, and it can be challenging to determine the best option for your needs. Three of the most common types of policy are term, whole and adjustable life. We’ve already discussed adjustable life insurance, but it may be helpful to understand what the other types offer as well.

• Term life insurance is the simplest type of policy you can purchase. It is generally inexpensive, and it lasts for a certain number of years, as the name suggests. Most insurers offer term insurance for periods between 10 and 30 years, making it a good choice for individuals who just need coverage for a shorter period of time. Unlike permanent insurance types, term policies do not have a cash value that accrues throughout the life of the policy.
• Whole life insurance is the most common type of permanent life insurance. As a permanent policy, it lasts the policyholder’s lifetime (up to a maximum coverage age ranging from 95 to 121), as long as premiums are paid, and it includes a cash value that builds up over the life of the policy. Whole life insurance may have living benefits built-in or offered as riders, such as long-term care benefits or a disability waiver. 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.

Frequently asked questions

• What is the best life insurance company?
  

  The best life insurance company for you will likely be different than the best company for your friends or family. Your health and lifestyle are typically evaluated when you apply so the company can place you in an accurate rate class. Companies often evaluate these risk factors differently, so your cost of coverage can vary from insurer to insurer. Also, life insurance is a personalized product, and you might value different things from a provider. For instance, if you’re on a fixed income, the best provider for you might be the one offering the cheapest policy. If you value customer service, the best insurer might be the one with the highest customer satisfaction reviews. Once you’ve identified what you’re looking for, you can compare life insurance quotes from the best life insurance companies to find a match.

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

  Yes, adjustable life insurance is another name for universal life insurance due to the policyholder’s ability to adjust the death benefit amount and premium amount paid throughout the life of the policy.

• 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 lifelong coverage — are generally at least five to ten times more expensive than term.