Flexible Life Insurance: Is It Worth The Hype?

Life insurance is a crucial financial safety net for individuals and their loved ones. However, traditional policies often lack the flexibility to adapt to changing life circumstances, leading to financial strain and inadequate coverage. This is where flexible life insurance comes in. Flexible life insurance is an umbrella term for policies that offer adaptability in premium payments, coverage amounts, and investment options. This type of insurance is designed to evolve with the policyholder's financial situation and life stage, providing a dynamic solution to their insurance needs.

Flexible life insurance is a hybrid policy that combines features of term life and whole life insurance

Flexible life insurance is an umbrella term for policies that offer flexibility in aspects like premium payments, coverage amounts, and investment options. These policies are designed to adapt to the changing financial situations and life stages of the insured. Also known as adjustable life insurance, it is a hybrid policy that combines features of term life and whole life insurance.

As a form of permanent insurance, adjustable life insurance is designed to last your entire life, provided you keep paying the premiums. It differs from other products like whole life insurance in that it offers much more flexibility to change the policy terms after signing up. For example, while whole life insurance always charges the same monthly premium, adjustable life insurance lets you change how much you pay each year, provided you at least cover the underlying cost of insurance. This flexibility allows you to increase premiums during high-earning periods and reduce them during low-earning periods.

Another key feature of adjustable life insurance is its cash value component. As you pay your premiums, part of the money goes towards the cost of insurance, while the rest is put towards the cash value. This cash value grows over time and can be used in various ways. For example, you can borrow money from the insurance company, using the cash value as collateral, or you can use it to pay your premiums. The cash value also has a guaranteed minimum interest rate and can grow faster if the insurance company performs well financially.

In addition to flexible premiums and cash value, adjustable life insurance also offers the ability to adjust the death benefit. You can increase or decrease the death benefit amount based on your evolving needs. However, changing the death benefit may require additional underwriting or an updated medical exam.

While flexible life insurance offers many benefits, there are also some disadvantages to consider. These policies can be more expensive than temporary term life insurance policies, and the interest earnings on the cash value may be modest. Additionally, adjustable life insurance policies require more work to manage compared to policies with fixed premiums. If you don't pay enough to cover the insurance costs, your future premiums will increase, and if you can't cover these costs, your policy may lapse.

It allows you to access some benefits while the policyholder is still alive

Life insurance is typically taken out to provide financial security for loved ones after the policyholder's death. However, some policies, such as permanent life insurance, offer the additional benefit of allowing the policyholder to access certain benefits while they are still alive. This feature is particularly useful if you need cash quickly or if you are unable to afford your premiums due to illness or disability.

Permanent life insurance policies, such as whole life or universal life, accumulate a cash value over time. This cash value can be accessed by the policyholder in several ways. Firstly, it can be used as collateral to take out a loan. Secondly, the policyholder can choose to withdraw money from the cash value, although this may result in changes to the policy premiums and the death benefit. Finally, the policy can be surrendered, meaning it is cancelled, and the cash value is released to the policyholder. It is important to consider carefully whether surrendering the policy is the right decision, as this will result in the loss of coverage.

Another way to access the value of a life insurance policy while still alive is to apply for living benefits. Living benefits allow a portion of the death benefit to be paid in advance if certain criteria are met, such as a chronic or terminal illness. For example, if the policyholder has been certified as terminally ill and has a life expectancy of less than 12 months, they may be able to access an accelerated death benefit. This allows them to exchange their death benefit for a payment equal to the face value of their policy. However, it is important to note that not all insurers offer this option, and some may only pay a portion of the death benefit up to a certain maximum amount.

Additionally, some life insurance policies offer a Waiver of Premium (WoP) rider, which can be beneficial if the policyholder suffers a serious illness or prolonged disability. The WoP rider allows the policyholder to stop making premium payments while still keeping their policy in force. The premiums will continue to be waived until the policyholder makes a full recovery.

Overall, while the primary purpose of life insurance is to provide a death benefit, flexible life insurance provisions allow policyholders to access certain benefits while they are still alive, providing financial support during difficult times.

It offers flexible premium payment options

Flexible life insurance is an umbrella term for policies that offer flexibility in aspects like premium payments, coverage amounts, and investment options. These policies are designed for individuals with changing financial situations and life stages. One of the key advantages of flexible life insurance is the ability to adjust premium payments within certain limits. This feature makes it suitable for those with fluctuating incomes, allowing them to align their payments with their financial circumstances.

Flexible premium life insurance enables policyholders to modify their premium payments according to their financial situation. This flexibility provides financial relief during challenging times and allows for quicker accumulation of cash value when possible. For instance, during high-earning periods, policyholders can opt to increase their premiums, while during low-earning periods, they can choose to reduce their payments. This adaptability ensures that individuals can maintain their coverage even during financial lows, providing peace of mind and financial security.

Universal life insurance, also known as adjustable life insurance, is a type of flexible premium life insurance. It offers the flexibility to adjust premiums, coverage, and death benefits to meet evolving needs. With universal life insurance, individuals can choose to pay premiums out of pocket or utilise the money in their cash value account to cover insurance costs. This flexibility allows policyholders to manage their payments based on their current financial situation.

Another benefit of flexible life insurance is the ability to skip payments without losing insurance protection. This feature ensures that individuals can maintain their coverage even if they need to prioritise other financial obligations temporarily. However, it is important to note that skipping payments may impact the growth of the policy's cash value.

Overall, the flexibility offered by adjustable life insurance policies provides individuals with the ability to customise their coverage and align their premium payments with their financial circumstances. This adaptability can be particularly advantageous for those with fluctuating incomes or evolving financial needs.

It provides a death benefit to loved ones, which they receive tax-free

Flexible life insurance, also known as adjustable life insurance, is a hybrid policy that combines features of term life and whole life insurance. It is a form of permanent insurance that lasts your entire life as long as premiums are paid. It has a cash value component that grows with the company's financial performance and offers a death benefit to loved ones, which they receive tax-free.

The death benefit is a payout to the beneficiary of a life insurance policy when the insured person dies. The amount of the death benefit is set in the terms of the contract and is chosen by the policyholder, who makes regular premium payments. The younger and healthier you are, the lower your premiums will be. The death benefit can be paid out in a lump sum or in installments. While the lump-sum proceeds are typically not considered taxable income, any interest earned on the death benefit is generally subject to tax.

The main reason for buying life insurance is to provide financial security for loved ones after your death. Flexible life insurance allows you to adjust the death benefit amount as your requirements change. For example, if you no longer have dependents, you may not need a large death benefit. By decreasing the face value of the policy, you can lower the ongoing payments. This flexibility ensures that the policy can adapt to your changing financial needs throughout your life.

In addition to the death benefit, flexible life insurance offers other benefits that can be accessed while the policyholder is still alive. These include the ability to borrow money from the cash value of the policy and the option of an accelerated death benefit, which allows the policyholder to receive a payment equal to the face value of the policy if they become terminally ill.

It is customisable and can change with your financial needs

Flexible life insurance is an umbrella term for policies that offer adaptability in aspects like premium payments, coverage amounts, and investment options. These policies are designed for individuals who need to customise their insurance based on their evolving financial situations and life stages.

Customisable Coverage

Flexible life insurance allows you to adjust your coverage amount when life changes. You can decrease your coverage at any time and increase it during a set period, usually the first 10 years of the policy, when certain life events happen, such as getting married or having a baby. This flexibility means you only pay for the coverage you need at a particular time.

Simple Adjustments

Flexible policies let you make changes to your coverage amount without having to get a new policy or go through the application process again. You can simply contact your insurance provider, upload proof of your life event, and review your new monthly cost.

Freeze Your Age and Health Status

One of the key benefits of a flexible policy is that once you purchase it, your age and health status at the time of purchase are "frozen". This means that if you adjust your coverage amount due to a life event, the new monthly rate is not affected by you getting older or any changes to your health that may have occurred since you bought the policy.

Keep Your Existing Policy

With a flexible policy, you can adjust your coverage without reapplying or purchasing a new policy. Reapplying can be time-consuming and frustrating, so flexible policies offer an easier option—you can add or reduce your coverage amount on the same policy without additional medical exams or testing, and adjustments can often be made completely online.

Customisable to Your Needs

Flexible life insurance policies allow you to customise the life insurance to meet your current or anticipated needs. You can change premiums, cash value, and death benefits based on your situation. For example, you can increase the death benefit due to a life event like the birth of another child, or decrease it if your children become financially independent.

Frequently asked questions