Adjustable Life Insurance: Cash Value And Benefits Explained

Adjustable life insurance, also known as universal life insurance, is a type of permanent life insurance that allows the policyholder to adjust their coverage, premiums, and savings as their financial needs and goals change over time. This flexibility makes it suitable for individuals who anticipate changes in their financial circumstances or life situations. The policy includes an interest-bearing savings component, the cash value account, which the policyholder can tap into while alive. The cash value grows based on market interest rates, and the policyholder can borrow from it, use it to pay premiums, or withdraw it. However, adjustable life insurance is more expensive than term life insurance, and the interest earnings may be modest.

Adjustable life insurance is a type of permanent life insurance

Adjustable life insurance is also known as universal life insurance or flexible premium adjustable life insurance. It is a "hybrid" between term life insurance and whole life insurance. Like whole life insurance, it is a type of permanent life insurance, which means that it can last the policyholder's entire life, with no end date, as long as premiums are paid. It also has a cash value component that grows over time and can be borrowed against or withdrawn.

The cash value in an adjustable life insurance policy earns interest, and this interest is usually based on market interest rates, although there is usually a guaranteed minimum interest rate. The cash value grows based on the premiums paid and the interest accrued. This cash value can be used to pay premiums or can be borrowed against or withdrawn. However, withdrawing more than the amount paid into the cash value will result in taxes being owed on the withdrawal.

Adjustable life insurance is more expensive than term life insurance, and the interest earned on the cash value is often modest. However, it offers the benefit of flexibility, which can be useful for those who want to be able to make changes to their policy over time.

It allows you to change features after signing up

Adjustable life insurance, also known as universal life insurance, is a type of permanent life insurance that allows you to change features of your policy after signing up. This flexibility makes it suitable for individuals who anticipate changes in their financial circumstances or life situations.

Changing your premium payments

Adjustable life insurance allows you to change how much you pay each year, provided you cover the underlying cost of insurance. You can pay more during years when you're earning a lot and decrease the premium when your budget is restricted.

Changing your death benefit

Adjustable life insurance also allows you to increase or decrease your death benefit. For example, you might increase the death benefit due to a life event like the birth of a child. Your premiums would increase for a larger death benefit, and you may need to undergo additional medical underwriting. Decreasing the death benefit is usually simpler and can be done upon request or in writing.

Changing your cash value

The third feature you can change in an adjustable life insurance policy is the cash value. You can increase the cash value by paying higher premiums. You can then borrow from the cash value or use it to pay your premiums. However, if you use up all the cash value, your policy might lapse, so check with your agent to ensure you have enough value to keep your coverage.

Who is adjustable life insurance for?

Adjustable life insurance is best for those who need planning flexibility, like business owners with uncertain revenue or someone who expects possible changes to their family and financial situation. It is also a good option for those who want the protection and cash value benefits of permanent life insurance but need flexibility with policy features.

You can increase or decrease your premium each year

Adjustable life insurance, also known as universal life insurance, is a type of permanent life insurance that allows you to change your premium payment each year. This flexibility makes it a good option for individuals who anticipate changes in their financial circumstances or life situations.

With adjustable life insurance, you can increase or decrease your premium annually, provided you cover the minimum insurance cost. This means that you can pay more during years when you have a higher income and reduce the premium during times of financial strain. For example, a business owner with fluctuating revenue could benefit from this flexibility by paying higher premiums during profitable years and lowering the premium during leaner times.

The ability to adjust your premium each year also allows you to align your payments with your budget. If you encounter a year where your expenses are higher, you can choose to pay a lower premium. Conversely, if you have extra funds available, you can opt to pay a higher premium to build up your cash value.

It's important to note that the insurance cost increases as you age. Therefore, when paying a lower premium, ensure that you cover at least the minimum amount required to maintain your coverage. The extra money you pay above the minimum goes into a reserve called cash value, which can be used to cover future premiums or other expenses.

By offering the ability to increase or decrease your premium each year, adjustable life insurance provides a level of customisation and adaptability that suits individuals with changing financial needs and goals.

It includes a savings component known as cash value

Adjustable life insurance, also known as universal life insurance, includes a savings component known as "cash value". This is an interest-bearing savings account that accumulates over time. The cash value can be used to pay premiums, borrow against, or withdraw from. The interest earned on the cash value is typically modest, and the rate may vary depending on market interest rates. The cash value can be a useful source of funds during financial difficulties, but it is important to ensure that the policy remains in force by maintaining the minimum required balance.

The cash value account offers flexibility to the policyholder by allowing them to adjust their premium payments. If the policyholder's income increases, they can choose to pay more into the policy, thereby increasing the cash value. In years where their income may be lower, they can choose to pay the minimum premium and use the cash value to cover the difference. This flexibility can be beneficial for individuals with variable income, such as business owners, or those who anticipate changes in their financial circumstances.

The cash value account also provides the policyholder with access to funds that can be borrowed against. This may be preferable to borrowing from a bank, especially if the insurance company offers a lower interest rate. However, it is important to note that any outstanding loans and interest will be subtracted from the death benefit if they are not repaid.

Additionally, the policyholder may be able to withdraw money from the cash value account, although this may be limited to an amount below the "surrender value" of the policy. Withdrawals may incur fees, and they will also reduce the life insurance payout to the beneficiaries. Therefore, careful consideration is necessary before accessing the funds in the cash value account to ensure that the policy remains in force and provides the intended level of protection.

The cash value grows based on market interest rates

Adjustable life insurance, also known as universal life insurance, is a type of permanent life insurance that offers the policyholder flexibility in terms of coverage, premiums, and savings components. This flexibility makes it suitable for individuals who anticipate changes in their financial circumstances or life situations.

One of the key features of adjustable life insurance is the ability to adjust the premium payments. The policyholder can choose to pay more or less in a given year, as long as the minimum insurance cost is covered. The extra money paid goes into a reserve called the cash value, which can be used to cover future premiums.

The cash value in an adjustable life insurance policy earns interest, and this interest is based on market interest rates. The return on the cash value can vary from year to year, depending on the current market rates. While the return may fluctuate, there is usually a guaranteed minimum interest rate offered by the insurer.

As the cash value grows, it can be used in several ways. The policyholder can borrow against the cash value, similar to taking out a loan, or they can withdraw a portion of the cash value. Additionally, the cash value can be used to pay future premiums, ensuring that the policy remains in force.

It is important to note that using the cash value, whether through withdrawals or loans, will reduce the death benefit that the beneficiaries will receive. Therefore, policyholders need to carefully consider their options and ensure they have sufficient funds in the policy to maintain their desired level of coverage.

In summary, the cash value in an adjustable life insurance policy offers policyholders a savings component that grows based on market interest rates. This growth provides policyholders with flexibility and the ability to adjust their coverage and premiums accordingly. However, it is essential to monitor the cash value and ensure it aligns with the policyholder's financial goals and needs.

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