What Is Adjustable Life Insurance?

Adjustable life insurance, also known as flexible life insurance, is a type of policy that allows policyholders to modify premiums, death benefits and cash value to suit their changing financial circumstances and life stages. This insurance type is particularly beneficial for those expecting significant life changes, such as family expansion or financial shifts. It offers the flexibility to increase or decrease your death benefit based on current needs, ensuring your coverage matches your life's demands without overpaying.

Understanding the characteristics of an adjustable life policy and weighing the pros and cons can help determine whether this is the right type of insurance for your needs.

Adjustable life insurance is a type of permanent life insurance that allows policyholders to alter premium payments, death benefits and the policy’s cash value as their financial circumstances evolve. Essential characteristics of adjustable life insurance include the capability to scale your death benefit up or down and to tailor premium payments to fit financial shifts, ensuring the policy remains relevant across different life stages.

Adjustable life insurance is a type of life insurance policy distinguished by its adaptable features, including flexible premiums and adjustable death benefits, which accommodate changing personal and financial situations over time.

• Flexible Premium: An adjustable life insurance policy's flexible premium is among its key features. The policyholder can increase or decrease premium payments, depending on their financial circumstances. Increasing premiums can accelerate cash value growth while reducing premiums can ease financial burdens during more challenging times without compromising coverage.

• Death Benefit Adjustments: With adjustable life insurance, you can increase or decrease your death benefit throughout the policy. For instance, if you experience a significant life event like the birth of a child or a significant increase in mortgage responsibilities, you might choose to increase the death benefit to ensure your family's financial security. Conversely, if your financial obligations decrease, such as when children become financially independent or debt is fully paid off, you might opt to lower the death benefit, which can result in lower premium costs.

• Cash Value Component: This feature acts as a financial cushion that can be utilized during the policy's term. The policy owner of an adjustable life policy can access the cash value through loans or withdrawals, which provides financial flexibility during unforeseen circumstances. The management of this component is important, as it affects the policy's longevity and efficacy.

Understanding the advantages and potential drawbacks of adjustable life insurance can help you make informed decisions about life coverage.

Deciding whether an adjustable life policy is suitable involves understanding how its features align with your current life situation and financial goals. This type of insurance offers benefits that may be ideal for some but not necessary for others.

Consider Adjustable Life Insurance If:

• You anticipate financial changes: If you expect your income to fluctuate or foresee significant life changes that might alter your financial landscape, the flexibility of an adjustable life policy allows you to modify your coverage and premiums accordingly.
• You seek investment opportunities: An adjustable life policy often includes options like flexible premium indexed adjustable life insurance, which can provide potential investment returns tied to market indexes.
• You value flexibility in financial planning: If you prefer to have control over various aspects of your life insurance, such as increasing or decreasing your death benefit or adjusting premiums based on your current financial situation, flexible life insurance might be right for you.

Adjustable Life Insurance May Not Be For You If:

• You prefer simplicity: If you find the complexity of managing adjustments within a policy daunting, simpler life insurance options might be better suited to your needs.
• You have a tight budget: The potentially higher initial costs of flexible life insurance might deter you if you have a limited budget or prefer a fixed cost that you can plan around without unexpected changes.
• You don’t want active involvement in managing a policy: If you prefer a set-it-and-forget-it type of policy where you don’t have to make ongoing decisions about premiums and benefits, then a traditional whole life or term life insurance might be a more suitable choice.

Evaluating whether an adjustable life insurance policy fits your life involves assessing your financial stability, future goals and personal preferences for managing insurance.

Adjusting an adjustable life insurance policy is a vital feature that allows policyholders to adapt their coverage as their financial circumstances change.

To make adjustments, you usually need to contact your insurance provider to discuss the changes you wish to make. Whether it’s increasing the death benefit due to family growth, reducing premiums due to a changed financial situation or adjusting the cash value component for better investment returns, your insurer can guide you through the process. Some changes may require additional underwriting, particularly if they involve increasing the death benefit.

Exploring alternatives to an adjustable life policy can help you find the right type of life insurance that matches your financial goals and coverage needs. Here are some other types of life insurance to consider:

Term Life Insurance

Term life insurance offers coverage for a fixed period, typically ranging from 10 to 30 years, making it a cost-effective option for those seeking temporary protection. It's straightforward without a cash value component, which keeps premiums lower than permanent life insurance options. However, once the term expires, you’ll need to seek new coverage, which could be more expensive, especially as you age.

Whole Life Insurance

Whole life insurance provides permanent coverage with fixed premiums and a guaranteed death benefit. It includes a cash value component that grows at a guaranteed rate, offering a savings element that can be borrowed against or withdrawn. This type of insurance is suitable for people who prefer stable premiums and consistent growth in cash value, but it’s generally more expensive than term life insurance.

Variable Life Insurance

Variable life insurance also offers lifelong coverage but with a cash value linked to various investment options, such as stocks and bonds. This allows for potential growth in the cash value, depending on market performance, which can significantly increase the policy's value. However, this also comes with higher risk, as poor investment performance can affect both the cash value and the death benefit. This type of policy is best suited for those knowledgeable about investments and comfortable assuming more risk in their insurance policy.

Below are answers to common questions about adjustable life insurance policies to help you figure out whether this policy type is the right option for you.