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Understanding Adjustable Life Insurance

What Is Adjustable Life Insurance?

Adjustable life insurance, also known as universal life insurance, is a type of permanent life insurance that remains in effect for your entire life, provided you pay the premiums. This policy not only offers a death benefit to your beneficiaries but also builds cash value that you can access during your lifetime. Unlike whole life insurance, adjustable life insurance allows you to modify your premiums and death benefit as your financial needs change.

How Does Adjustable Life Insurance Work?

Adjustable life insurance functions similarly to term life insurance by providing a death benefit to your survivors. However, it includes additional features:

Cash Value

A portion of your premiums goes into a cash account that grows tax-deferred at an interest rate set by the insurance carrier. You can withdraw, borrow against, or use this cash value to pay your premiums. Keep in mind that withdrawing or borrowing from this account will reduce the death benefit unless repaid.

Adjustable Premiums

You can adjust your premiums over time. If you need to cut expenses, you can lower your premiums. Conversely, you can increase them to build cash value faster. However, you must ensure the policy’s cash value is sufficient to cover the insurance costs, or your policy could lapse.

Adjustable Death Benefit

You can modify the death benefit as your life circumstances change. For example, you might reduce the death benefit once your mortgage is paid off or your children are grown, which also lowers your premiums. Increasing the death benefit may require a medical exam.

Pros and Cons of Adjustable Life Insurance

Pros

• Lifelong Coverage: The policy remains in force as long as premiums are paid.
• Builds Value: The cash value can be withdrawn, borrowed against, or used to pay premiums.
• Customizable Premiums: Adjust premiums to fit your financial situation.
• Adjustable Death Benefit: Modify the death benefit as your needs change.

Cons

• Expensive: Costs more than term life insurance, though typically less than whole life insurance.
• Complicated: Requires active management to ensure the policy doesn’t lapse.
• Costs May Change: Premiums can increase as you age.
• Returns Aren’t Guaranteed: Interest rates on the cash value can fluctuate.
• Death Benefit Isn’t Guaranteed: Tapping into the cash value can reduce the death benefit.
• Possible Tax Consequences: Loans against the policy could be taxable if the policy lapses.

Can You Cash Out an Adjustable Life Insurance Policy?

Yes, you can borrow against or withdraw part of the cash value. However, if the cash value drops to zero, the policy lapses. You can also surrender the policy and receive its surrender value, which is the cash value minus any loans, premiums, and surrender fees.

Should I Get an Adjustable Life Insurance Policy?

Adjustable life insurance isn’t for everyone. Here are some scenarios where it might be beneficial:

• You Can Afford the Premiums: Ensure you can consistently pay the premiums to avoid policy lapse.
• Variable Income: If your income fluctuates, adjustable premiums can be a good fit.
• Active Management: If you enjoy managing your finances, this policy requires regular oversight.
• Fully Funded Retirement Plans: If you’ve maxed out other retirement accounts, this policy can be an additional investment.

How to Get an Adjustable Life Insurance Policy

1. Figure Out How Much Coverage You Need: Consider outstanding debts, income replacement, and future expenses.
2. Comparison Shop: Get quotes from multiple insurers. An insurance broker can help you navigate options.
3. Research the Company: Check financial stability and customer service ratings.
4. Apply for Coverage: Submit an application, which may include a medical exam.
5. Get Approved: Once approved, your coverage starts when you make your first premium payment.

The Bottom Line

Adjustable life insurance offers lifelong coverage with flexible options. Before applying, check your credit score, as it can affect your insurance rates. For personalized advice and to explore your options, contact O1ne Mortgage at 213-732-3074. We’re here to help you find the best mortgage and insurance solutions tailored to your needs.