Should You Get an Adjustable Life Insurance Policy?

Did you know you can make changes to your life insurance policy? If not, you may be interested in learning more about adjustable life insurance policies.

This article will teach you what adjustable life insurance is and how it works, but also how to adjust certain policy features based on your budgets, such as premiums, death benefits, and cash flow. 

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Although an adjustable life insurance policy has a number of benefits we also outlined, it isn’t for everyone.

What if you already have whole-life insurance, and switching doesn’t pay off? Or are the flexible factors not that much of a feature to draw you in? Or you are looking for something else, not just the option to change the features. 

We at Wealth Nation are using the concept of infinite banking to build a system that works for you. This might be the adjustable life insurance alternative you’ve been looking for. 

What Is an Adjustable Life Insurance Policy?

An adjustable life policy is a permanent life insurance policy that is in effect as long as you pay the premiums. It combines both the features of term insurance and whole life insurance. Since it has a cash value component, it is also referred to as the 7702 plan.

Life can be unpredictable, as we’ve seen in the last few years. People get pay cuts or lose jobs, and companies are declaring bankruptcy all over the country. Adjustable life insurance policyholders who experience something like this can quickly change some features within a policy.

Depending on how much you earn, you can adjust premiums, death benefits, face amount, and period of protection. For example, you can reduce the cost of your death benefit coverage and receive less. 

A change doesn’t have to be triggered by a negative event. You can also get a pay raise and want to boost up your insurance to get some extras. 

To decide if it’s the right choice for you, let’s see how it works.

How Does an Adjustable Life Insurance Policy Work?

When you buy adjustable life insurance, also called universal life insurance, premiums are determined based on age, health, and certain risk factors.

By paying premiums regularly, you are insured with death benefits that are paid after your death to a beneficiary of your choice.

One part of the premiums refers to administrative fees and death benefit coverage, and the other to the amount your insurance company invests on your behalf, known as flexible cash value.

This is money that you save tax-deferred, earning a small interest. As the cash value grows, you can use it in different ways. 

But, if you decide you no longer need the insurance, you will receive a portion of the cash value minus administrative fees.

Let’s take a closer look at the factors you can change while using adjustable life insurance.

  1. Flexible premiums – You can change the value of flexible premiums and the frequency of future payments as long as you pay a guaranteed minimum interest rate. The life insurance company determines the minimum premium amount based on your cost of insurance (COI), specifically the cost of managing and administering your policy. Plus, you’ll be able to pay more if you can cover it.
  2. Cash value – If you decide to pay premiums that exceed your COI coverage, you can divert the excess money to the policy’s cash value. You can increase the monetary value of the policy by paying higher premiums. Alternatively, you can reduce the amount of cash value by applying it to premium payments.
  3. Flexible death benefits – This variable life insurance policy allows you to increase or decrease your policy’s death benefit. An increase in the death benefit will also affect the increasing premiums. If the amount is large, the insurer may require you to submit new proof of insurance, for example, a medical exam. 

Who Should Consider an Adjustable Life Insurance Policy?

Anyone who wants to use the cash value of permanent life insurance and the flexibility of an adjustable life policy can benefit from using an adjustable life insurance policy.

Although you can become a policyholder, some people would benefit more from adjustable life insurance, while others may need to look for other options. 

Consider adjustable life insurance if you fall under one of these categories:

  • Unemployed Person
  • A parent or guardian of a child with a disability
  • Insured (to increase the nominal amount after marriage or the child’s birth)
  • A wealthy individual (to enable a tax-deferred savings account)

For these policyholders, adjustable life insurance is a great fit. However, there are other features to consider.

While you have some flexibility to change the cash flow of your policy, you don’t have complete control over your money. Most insurance companies will impose restrictions on policy changes so that they will specify protocols you must follow if you wish to change anything.

Adjustable life insurance can be convenient as it allows you flexibility, but on the other hand, it can be more expensive. 

Benefits and Drawbacks Of Adjustable Life Insurance

Owning an adjustable life policy may seem appealing, but with all the disadvantages, you should consider whether it is truly the best option.

Look at the table below for a better insight into the pros and cons. 

   Pros                          Cons
Premiums are adjusted to the needs of the policyholderMore expensive premiums 
Cash value increases over timeModest interest earnings
Death benefit can increase or decrease as life circumstances changeIncreasing your death benefit cause premiums rise

As you can see, adjustable life insurance policies offer advantages over traditional life insurance policies. The main benefit is that they offer policyholders the opportunity to adjust their coverage as their needs change over time.

However, there are also some drawbacks. One disadvantage is that they often have more complex terms and conditions than traditional policies. Another downside is that some policyholders may find it difficult to keep up with the required premium payments, as they are more expensive.

Whether an adjustable life insurance policy is right for you will depend on your circumstances and needs. But before signing off on the deal, here’s an alternative to consider.

Adjustable Life Insurance Policy vs. Whole Life Insurance Policy

There are various types of life insurance policies, and we understand why you might be unsure about which one is best for you and your family. If you only have one more option, it should be whole life insurance.

Whole life insurance is a type of permanent life insurance that provides coverage for the insured’s entire life. The death benefit is paid out to the beneficiary regardless of when the policyholder dies. 

By contrast, adjustable life insurance policies only cover the insured for a set period of time. After that, the policy expires and the insured is no longer covered.

This might come as a surprise, but whole life insurance policies are much more flexible than adjustable ones. Death benefits can cover any expenses related to the insured’s death, including funeral costs and debts.

Additionally, whole life insurance policies build up cash value over time, which can be withdrawn at some point

For all these reasons, whole life insurance is the better option for dependable and comprehensive coverage.

Build a system that works for you!

You’ve seen the benefits and downsides of adjustable life insurance policies and if you think it is the right choice – go for it. 

Whole-life insurance, on the other hand, has more to offer, and it could be better insurance because it gets you one step closer to building a system that works for you! 

Imagine being able to design your insurance policy and take control of your finances to create a better future for yourself and your family. Fortunately, there is a way to make it happen. 

You can create an independent financial system through infinite banking, which we will refer to as lifestyle banking.

This is how it works.

First, you need to transfer your savings into a whole life insurance policy. After you do, your policy will act as a storage in your banking system.

You will have the possibility of borrowing money from yourself and repaying it whenever you please. It’s quite encouraging. Additionally, when you borrow money in the form of a loan against the cash value in your policy, it can continue to grow tax-deferred within your life insurance policy. 

This way, you begin to eliminate financial institutions and gain financial independence. Instead of giving the money to the bank, which annually obtains abnormally large discounts on your deposits, you keep it for yourself.

You use your life insurance policy to build a system that works for you, not against you, and you’ll have all the flexibility you need.

Whether you plan to improve your future by investing in education, travel, or buying real estate, you will need the financial resources to achieve those goals, and lifestyle banking opens the door to do just that. 

There are many situations where Infinite Banking can help you gain financial security.

Additionally, through lifestyle banking, you can start family banking which allows you to keep all your money within the family. You can lend money to a family member, and they will pay you the principal and interest.