What Is Adjustable Life Insurance?
Adjustable life insurance, also known as universal life, is a versatile policy that offers the flexibility to modify features such as premium payments and death benefits even after enrollment. These policies come with a cash value account that accrues interest, providing you with the option to access funds while you’re alive.
Opting for an adjustable life insurance policy requires more strategic planning and oversight, yet it offers significantly greater adaptability compared to other alternatives. For those contemplating an adjustable life insurance plan, here’s what you should consider.
**Key Takeaways**
- Adjustable life insurance enables adjustments to cash value, premiums, and death benefits.
- It allows you to tailor your coverage to accommodate life changes.
- These policies feature a cash value component that grows over time, offering opportunities for borrowing or premium payments.
- While the cash value may earn interest, the returns tend to be moderate.
Understanding Adjustable Life Insurance
Adjustable life insurance, a form of permanent coverage, remains active throughout your life as long as you continue paying premiums. What sets it apart from whole life policies is its enhanced flexibility in altering terms post-registration.
Unlike whole life insurance that maintains a fixed monthly premium, adjustable life allows for annual payment adjustments, provided the minimum insurance costs are met. This flexibility enables you to increase or decrease premium contributions based on your financial circumstances.
With a cash value feature that accumulates interest based on market rates, adjustable life insurance facilitates withdrawals and loans, offering potential avenues for covering future premiums.
Acknowledged as the most adaptable insurance option, adjustable life coverage appeals to individuals seeking the benefits of permanent life insurance with added policy feature flexibility.
Changing the death benefit may necessitate additional underwriting or a refreshed medical assessment.
Factors That Can Be Adjusted
An adjustable life insurance policy allows modifications to three primary components: premiums, cash value, and death benefits, unlike term life policies that have expiration dates. Premium adjustments are permissible in frequency and amount, as long as the minimum insurance cost is met.
Increasing premium payments can boost the policy’s cash value, whereas withdrawals or cash usage for premiums can deplete it. Ensuring sufficient cash value is essential to avoid potential lapses.
Additionally, you can modify the death benefit by raising or lowering the amount. Changes may necessitate further underwriting, depending on the extent of adjustment required.
Advantages and Disadvantages of Adjustable Life Insurance
Offering superior flexibility compared to other policies, adjustable life insurance empowers policyholders to tailor premium payments and death benefits to suit evolving needs. The ability to accumulate cash value and the potential for lifelong coverage are additional benefits.
However, managing adjustable life insurance entails more complexity than fixed premium policies like whole life. Inadequate premium payments can lead to increased future premiums or even policy lapses in case of escalating costs.
While adjustable life insurance is more costly than term policies, the modest interest earnings and management complexities may prompt some individuals to explore alternative investment options outside of life insurance.
**Pros**
- Premium adjustments
- Death benefit flexibility
- Possible lifelong coverage
**Cons**
- Higher initial cost
- Modest interest earnings
- Complex management
Guidelines for Life Insurance Policies and Riders
IRC Section 7702 outlines the rules and stipulations for life insurance policies, including the conditions necessary for favorable tax treatment, such as tax-free cash value loans.
Adherence to premium payment guidelines under IRC Section 7702 is crucial to maintaining tax benefits. Insurance companies often establish parameters to prevent non-compliance and subsequent policy tax implications.
Adjustable life insurance policies commonly offer optional riders like premium waiver and accidental death coverage.
**What Is the Difference Between Adjustable Life Insurance and Universal Life Insurance?**
Adjustable life insurance and universal life insurance are synonymous terms denoting the same insurance type.
**What Is a Cash Value Account?**
The cash value account, inherent in adjustable life policies, is an interest-earning savings segment within the policy. Contributions and accrued interest collectively boost the cash value over time, enabling policyholders to leverage the value through withdrawals or loans.
**What Changes Can a Policy Owner Make to an Adjustable Life Policy?**
Policyholders can modify various aspects of an adjustable life policy, including death benefits, premium payments, protection terms, and cash value contributions.
**What Changes Require Additional Underwriting?**
Elevating the death benefit amount may necessitate additional underwriting procedures by the insurance company, particularly for significant increases requiring full medical assessments.
The Bottom Line
Adjustable life policies offer unparalleled flexibility for policyholders seeking personalized coverage adjustments. With careful adherence to insurer guidelines, these policies serve as dynamic solutions meeting evolving insurance needs.
When considering a policy, ensure thorough research on the insurer’s reputation and standing within the industry to align with the best life insurance providers.