Life insurance, the term “adjustable life insurance” introduces a nuanced option for those seeking a blend of permanence and adaptability in their coverage. Often synonymous with universal life insurance, adjustable life insurance offers policyholders unprecedented control over the finer details of their insurance contracts, such as premium schedules, coverage amounts, and more.
This feature-rich insurance solution ensures coverage across the entirety of one’s life and integrates a cash value savings component that appreciates over time.
The Flexibility of Adjustable Life Insurance
At its core, adjustable life insurance is a type of permanent life insurance that empowers you with greater influence over your policy. Unlike traditional life insurance policies with fixed premiums and death benefits, adjustable life insurance allows you to modify these elements.
This flexibility is particularly appealing in a world where financial stability and personal circumstances change unpredictably.
Pros of Adjustable Life Insurance
Flexible Premiums:
One of the most appealing features of adjustable life insurance is the ability to lower your premium payments, alter their due dates, or even skip payments under certain conditions. This flexibility proves invaluable during financial downturns, such as loss of income, enabling you to adjust your premium payments to suit a tightened budget. It’s worth noting, however, that adjustments to your premium payments are typically covered by the policy’s accrued cash value, necessitating sufficient value accumulation before any modifications.
Adjustable Coverage:
Life’s milestones, such as the birth of a child or the moment your kids gain financial independence, often necessitate reevaluating your insurance coverage. Adjustable life insurance policies allow you to increase or decrease your death benefit, allowing your coverage to evolve alongside your life’s chapters.
Cash Value Builds:
The cash value component of adjustable life insurance policies is more than a mere savings account; it’s a dynamic financial resource. Over time, this cash value grows, offering options such as borrowing against the policy, utilizing the funds to cover premiums, or even augmenting your policy’s death benefit under certain plans.
Cons of Adjustable Life Insurance
Higher Costs:
The customizable nature of adjustable life insurance comes at a price, rendering it generally more expensive than its more rigid counterparts. Modifications, especially significant increases in your death benefit, could lead to higher premiums and the need for additional underwriting.
Policy Adjustment Restrictions:
Despite the inherent flexibility, you can’t modify your policy whimsically. Insurers often set guidelines on when and how you can adjust your policy, emphasizing the importance of understanding these conditions beforehand.
Variable Interest Rate:
Your policy’s cash value is subject to a variable interest rate tied to market conditions, which introduces a degree of unpredictability to the growth of this value compared to policies with fixed interest rates.
Clarification on Terminology
It’s important to demystify the terminology: “adjustable” and “universal” life insurance are two terms that refer to the same policy type, offering adjustable features. This clarification ensures a better understanding of the product offerings in the market.
Cashing Out an Adjustable Life Insurance Policy
Cashing out or surrendering your adjustable life insurance policy is possible, though it comes with restrictions. Whether through surrendering the policy back to the insurer for its accumulated cash value or taking out a loan against its value, these options provide financial flexibility but also end your coverage or require repayment with interest.
Is Adjustable Life Insurance Right for You?
Adjustable life insurance is an appealing option for those desiring life insurance that accommodates the ebb and flow of life’s financial and personal circumstances. The ability to modify your coverage and premiums offers a tailored insurance experience, unlike traditional policies that lock you into specific terms.
Scenarios Where Adjustable Life Insurance is Beneficial
Having a Child:
The arrival of a new family member might prompt an increase in your coverage amount to secure their financial future.
Losing a Job:
During periods of unemployment, the ability to lower your premium payments can provide much-needed financial relief.
Kids Moving Out:
As your dependents carve out their independent lives, you might find it practical to reduce your coverage and, by extension, your premiums.
Conclusion
Adjustable life insurance marries the permanence of life insurance with the flexibility to adapt to changing life circumstances. Its customizable nature allows for a more personalized approach to life insurance, providing peace of mind that your coverage can grow and adjust as your life evolves.
Whether facing new beginnings or navigating life’s transitions, adjustable life insurance stands out as a versatile and adaptable option for ensuring your financial security and that of your loved ones.
FAQs
Can I switch from a term life to an adjustable life insurance policy?
Yes, many insurers offer a conversion option that allows you to switch from a term life insurance policy to a permanent one, such as adjustable life insurance, without undergoing a new medical exam. However, the specifics depend on your policy’s terms, so it’s important to consult your insurer.
Does borrowing against the cash value of my adjustable life insurance policy affect my death benefit?
Borrowing against the cash value of your policy does reduce the death benefit if the loan is not repaid. The outstanding loan amount plus interest will be deducted from the death benefit payable to your beneficiaries.
Is adjustable life insurance more expensive than term life insurance?
Yes, adjustable life insurance is generally more expensive than term life insurance due to its permanent coverage, cash value component, and flexible features. The trade-off is greater flexibility and the potential for cash value growth.
How do I know if adjustable life insurance is the right choice for me?
Adjustable life insurance is ideal for individuals looking for lifelong coverage with the ability to adapt their policy to changing financial circumstances. Consider your long-term financial goals, need for flexibility, and willingness to manage the policy’s components. Consulting with a financial advisor or insurance agent can help you make an informed decision.
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