Adjustable life insurance

Adjustable life insurance offers permanent coverage and allows you to change your policy’s coverage amount, payment schedule, and cash value.

Adjustable life insurance, also known as universal life insurance or flexible premium adjustable life insurance, is a type of permanent life insurance that has some of the features of a term life insurance policy. You can adjust your policy’s coverage 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. Though term life insurance doesn’t offer the same flexibility, it’s better for most people because of its lower rates.

Key Takeaways

  • Adjustable life insurance allows for changes to the death benefit, the cost and frequency of premiums, and cash value

  • The cash value can be used as an investment account, but earnings are lower than more traditional investments

  • Adjustable life insurance can be a good choice for joint policyholders, parents of children with special needs, and individuals who have maxed out other investment options

What is adjustable life insurance?

Adjustable life insurance is a permanent life insurance policy that offers lifetime coverage and a cash value account, and also has premiums and coverage amounts that can be changed.

There are three key elements you can change in an adjustable life insurance policy:

  1. 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 by withdrawing funds.

  2. 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.

  3. 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. [31]  

How does the cash value of an adjustable life insurance policy work?

The cash value in a life insurance policy is 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:

You’re not guaranteed to earn interest (though some insurers will guarantee a minimum rate of 0% to protect you from losses), so 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.

➞ Learn more about how to use your policy’s cash value

How much does adjustable life insurance cost?

It’s difficult to determine an average rate for adjustable life insurance. Standard life insurance rates already differ 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

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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.

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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. 

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 the 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 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.

Frequently asked questions

What is the difference between adjustable life and universal life insurance?

The two policies are the same. Adjustable life insurance is another term for universal life insurance.

How often can adjustments be made to adjustable life insurance?

It depends on your insurance contract and whether your policy can support the adjustment. If you have too little cash value, for example, you may not be able to withdraw from it.

What is a flexible life insurance policy?

Flexible life insurance and flexible premium life insurance are different terms for adjustable life insurance. They highlight the ability to change your premium amounts and payment schedule.