Adjustable Life Insurance

Shawn Plummer

CEO, The Annuity Expert

What Is Adjustable Life Insurance?

Adjustable life insurance is a permanent life insurance policy that gives policyholders the flexibility to change the premiums and death benefits. A hybrid policy that incorporates features of term life and whole life insurance is adjustable life insurance. An adjustable life plan is permanent insurance intended to last as long as the premiums are paid into the plan.

The policy also known as flexible adjustable premium fixed life insurance contains a cash value component that profits with the insurer’s financial success, with a guaranteed minimum interest rate.

How does adjustable life insurance work?

Adjustable life insurance is like other life insurance. It has a death benefit that beneficiaries get when the insured dies. They can also pay monthly or yearly to buy it.

Permanent insurance is insurance that lasts forever. A portion of the money you pay for it goes towards administrative fees and death benefits. The other money can be saved in “cash value.” This cash value can be used for loans or to pay premiums on the policy.

You may change three parts of your coverage over the course of an adjustable life policy’s term:

  1. Premium payments
  2. Death benefit
  3. Cash value.

On the other hand, the insurer has the discretion to decide when and how frequently you’re allowed to make these changes.

Flexible cash value and premiums

The cash value of an adjustable life insurance policy will grow more quickly if you put in more money than required. You may also use the policy’s cash value to pay a portion or all of your premiums, allowing you to make your payments as needed over time.

The cash value in a flexible premium adjustable life insurance policy grows as interest rates on the insurer’s financial portfolio rise. As previously said, your cash value will increase at a minimum annual rate of interest if the insurance company has a strong market performance.

Utilizing a stock market index to grow the cash value

Adjustable life insurance with an indexed option is comparable to a standard adjustable life policy. Still, the cash value appreciation is linked to the performance of an index such as the S&P 500 or Dow Jones. Therefore, if the index you picked performs well or poorly during a time period, the interest rate will rise or fall.

Indexed life insurance has a higher potential return than whole life insurance, but it also carries the danger of slower growth if the underlying index is performing poorly.

What is a 7702 Plan?

7702 life insurance is a term used to refer to permanent life policies with a cash value component, such as flexible premium adjustable policies. This title implies that they comply with section 7702 of the tax regulations for life insurance.

The tax code limited what could be classified as a life insurance product, preventing other investment vehicles from capitalizing on the tax benefits of life insurance.

Can you change the death benefit in an adjustable life policy?

Life insurance with an adjustable death benefit allows you to alter the amount of money paid out in the event of your death, depending on your coverage needs. If an increase is substantial enough, you may be required to take another medical exam and pay a higher premium amount.

When your cash value rises, you may be able to pay reduced premiums or cease paying any premiums at all. Adjustable life insurance policies let you reduce the face amount to accurately meet your requirements while lowering future payments.

Pros and Cons

The appeal of flexible premium adjustable life insurance is that you may anticipate changing coverage requirements in the future. In an insurance policy, the capacity to adjust policy elements based on your financial situation or future objectives can be beneficial.

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Shawn Plummer

CEO, The Annuity Expert

I’ve sold annuities and insurance for more than a decade. My former role was training financial advisors, including for a Fortune Global 500 insurance company. I’ve been featured in Time Magazine, Yahoo! Finance, MSN, SmartAsset, Entrepreneur, Bloomberg, The Simple Dollar, U.S. News and World Report, and Women’s Health Magazine. My goal is to help you take the guesswork out of retirement planning or find the best insurance coverage at the cheapest rates for you. 

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