Adjustable Life Insurance

8(a) Firm

What is adjustable life insurance

Adjustable life insurance is a hybrid term and whole life insurance plan that allows policyholders to change the characteristics of the policy. These policies allow policyholders to adjust the coverage period, the face amount, premiums and the length of the premium payment period. These policies also include an interest-bearing savings component or a cash value account.


Life insurance

BREAKDOWN Adjustable life insurance

Adjustable life insurance differs from other life insurance products in that there is no need to cancel or purchase additional policies as the insured’s circumstances change. Adjustable life insurance policies are attractive to those who want the protection and cash value of permanent life insurance, but who need or want a certain level of flexibility with the features of the policy. By using the ability to change premium payments and face amounts, policyholders can customize their coverage as their lives change. For example, an policyholder may want to increase the face amount at marriage and the birth of children. An unemployed worker may want to reduce premiums to accommodate a tight budget.

Adjustable life insurance options

As with other permanent life insurance, adjustable life insurance has a savings component that earns interest of monetary value. Today, most cash value adjustable life insurance accounts have a guaranteed interest rate. The adjustable feature of the insurance allows policyholders to make changes to the main features of the policy within certain limits.

The policyholder may increase or decrease the premium, increase or decrease the face amount, extend or shorten the period of guaranteed coverage and extend or shorten the period of payment of the premium. Adjustments to the policy will change the guaranteed period and changes to the duration of the guarantee will change the cash surrender value scale. The reduction in the insured capital is made on request or in writing. However, the increase in the insured capital may require an additional subscription, substantial increases requiring a full medical subscription.

Section 7702 of the Internal Revenue Code (IRC) defines the features and guidelines of life insurance policies. Subsection C of this section provides guidelines for the payment of premiums. The policyholder cannot adjust the premiums in a way that violates these guidelines. Higher premiums can also increase the principal amount to an amount that requires proof of insurability. However, many life insurers set parameters to avoid violations.

Like other life insurance policies, adjustable life insurance policies generally have optional riders. Familiar runners include waiver of premium runners and accidental death and dismemberment

Adjustable life insurance policies offer the flexibility that most traditional policies do not offer. However, the frequency of authorized adjustments is limited. The policy allows adjustments within defined adjustment times. Claims must be made within a specified time and must comply with the guidelines established by the insurer. The variability of adjustments can create a policy that reflects lifespan or lifetime. In fact, adjustable life insurance policies allow policyholders to adjust their life insurance according to their current or anticipated needs.

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