Adjustable Life Insurance: What Is It? How Does It Work?

Shawn Plummer

CEO, The Annuity Expert

If you’re looking for a life insurance policy that provides some flexibility, then you should consider an adjustable life insurance policy. This type of policy gives you the ability to change your coverage as your needs change. In this guide, we will discuss everything you need to know about adjustable life insurance policies. We’ll cover how they work, the benefits they offer, and how to choose the right one for your needs.

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 a permanent insurance intended to last as long as the premiums are paid into the plan.

The policy is 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 main benefit of an adjustable life insurance policy is that it provides flexibility. As your needs change, you can make changes to your policy to ensure that it meets those needs. For example, if you have a child, you can increase your coverage to make sure they are taken care of financially if something happens to you

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.

Types of Adjustable Life Insurance Policies

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Conclusion

If you’re looking for a life insurance policy that provides some flexibility, then an adjustable life insurance policy might be right for you. In this guide, we’ve covered everything you need to know about these types of policies, including how they work, the benefits they offer, and how to choose the right one for your needs. Now that you know all this information, you can make an informed decision about whether or not an adjustable life insurance policy is right for you. Request a quote today to get started.

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Frequently Asked Questions

What is flexible premium adjustable life insurance?

Flexible premium adjustable life insurance is a type of life insurance that allows policyholders to make adjustments to their premiums, death benefits, and other features of their policy. This flexibility can be beneficial for those who want to keep their life insurance coverage in force but need to make changes to their budget or their coverage needs.

Shawn Plummer

CEO, The Annuity Expert

I’m a licensed financial professional focusing on 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.

The Annuity Expert is an online insurance agency servicing consumers across the United States. 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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