Adjustable life insurance, also known as universal life insurance or flexible premium adjustable life insurance, is a type of permanent life insurance that allows you to adjust your policy’s coverage death benefit amount, premiums, and premium payment period.
Adjustable policies can offer life insurance coverage until you die and come with a cash value account that earns interest.
What is adjustable life insurance?
Adjustable life insurance is a permanent life insurance policy that offers lifetime coverage and a cash value account. It also has premiums and coverage amounts that can be changed.
There are three key elements you can change in an adjustable life insurance policy:
Cash value. You can increase the cash value of the policy by increasing your premium payments and decrease the cash amount by using it to pay premiums or withdrawing funds.
Death benefit. You can increase or decrease the face value of the policy as your needs shift. A large increase may require additional underwriting and increase your premiums, while a decrease will lower your premiums.
Premiums. You can modify the amount or frequency of premium payments, above a minimum set by your provider.
Most people who purchase an adjustable life insurance policy do so because they want both permanent coverage and flexibility. For example, if you’re expecting a child, you can increase your death benefit. If you’re out of work, you can decrease your premiums to fit your budget.
There are some limitations to how much you can adjust your policy. For example, your insurer sets a minimum premium payment to comply with IRS tax regulations, which outline the requirements for your policy to qualify as a life insurance contract. 
How does the cash value of an adjustable life insurance policy work?
The cash value in a life insurance policy works as a tax-deferred savings account that can earn a small amount of interest. Part of your monthly or annual premium payments goes toward the cash value of the policy.
Your cash value growth changes based on the financial performance of your insurer’s portfolio.
The cash value of an adjustable life insurance policy can be used in multiple ways:
Depending on which type of policy you have, you’re may not be guaranteed to earn interest.
Universal life policies will have a guaranteed minimum rate above 0%.
Indexed universal life policies will have a floor of 0% to protect you from losses and a capped upside return.
It’s important to keep an eye on your cash value spending. If you use up the cash value and can’t afford your premiums, you’ll lose your policy.
How much does adjustable life insurance cost?
It’s difficult to determine an average rate for adjustable life insurance. The standard average cost of life insurance already differs based on your health, age, and lifestyle, and with an adjustable policy, the premiums can change over time.
Because coverage is permanent, you can expect the initial premiums to be higher than those of a term life insurance policy. On average, permanent life insurance costs five to 15 times more than term life insurance.
How does adjustable life insurance compare to other types of life insurance?
An adjustable life insurance policy is just one of many policy options to consider when purchasing life insurance coverage. Here’s how it compares to other common types of life insurance:
Term life insurance: Unlike adjustable life insurance, term policies only offer coverage for a set period — usually 10-30 years, after which few people still need insurance coverage — and have no cash value. As a result, policies are significantly cheaper.
Whole life insurance: Like an adjustable policy, whole life offers permanent coverage and a cash value. However, whole life doesn’t offer flexibility around premiums and the death benefit, making whole life harder to fit into a budget.
Variable life insurance: Variable policies also offer lifetime coverage, but you can’t make policy adjustments and the cash value is invested differently than in an adjustable policy. With variable life, you choose from a range of investment options offered by your insurer, such as stocks and mutual funds.
Is adjustable life insurance worth it?
Because adjustable life insurance is so costly, term policies tend to be a better option for most people. Many people don’t need insurance protection for life and will find the high premium payments difficult to maintain.
As a life insurance sales agent, I would only advise people to consider variable life insurance in extremely rare cases.
Most people don’t need a cash value feature either, and will get a better rate of return from a traditional investment account. Purchasing a term life insurance policy and investing the cost difference is generally a better choice.
But people who need lifetime coverage may find that adjustable life insurance offers the combination of protection and flexibility they need. An adjustable life policy is worth considering for:
High-net-worth individuals: If you regularly max out your other tax-deferred investment accounts, the cash value of an adjustable life policy is another way to build retirement savings. Consult with a financial advisor to see if it fits your financial goals.
Parents of children with special needs: If your child or another family member needs lifelong financial support, then it makes sense to have a plan to provide for them no matter when you pass away.
Survivorship life insurance policies: Joint survivorship policies (usually sold to spouses) cover two people and pay out after both pass away. They are usually used to benefit a lifelong dependent or create an inheritance for the beneficiary.
Work with an independent broker like Policygenius to find a policy that’s right for your family’s needs.