3 Situations when Adjustable Life Insurance is Appropriate

Insurance shoppers can consider AL for almost any life insurance need. Initially, the policyowner can have the insurance company configure an AL policy’s death benefit and premium level to resemble virtually any type of life insurance policy from five-year term insurance to single premium whole life. However, because of policy costs, AL is generally best suited for longer-term coverage needs. For short-term coverage needs where future insurability is not a factor, a nonrenewable term policy generally would be more cost effective.

  1. AL was indicated whenever insureds needed or desired greater flexibility over time in life insurance coverage, needed or wanted guaranteed protection, and preferred the forced savings feature of level premium whole life insurance. Policyowners whose circumstances changed can reconfigure the policy by changing the schedule of premium payments and/or the face amount or duration of coverage.
  2. The insurance industry marketed AL as the only policy a person will ever need. The flexibility made it very useful in the family market. For example, a young parent with a growing family and modest income was able to acquire an AL policy that was initially configured with low premiums and a high death benefit to resemble a traditional term policy. As the parent’s income grows, they can increase the scheduled premiums to build up tax-sheltered cash within the policy. At later times when they need cash, such as to pay for children’s educations, they can reduce the scheduled premiums. The policyowner can use partial surrenders or policy loans to help pay the school expenses. After a time, the policyowner can increase scheduled premiums once again to build cash values that policyowner and spouse can use for their retirement. Similarly, if the amount of death protection that is needed changes, the policyowner may increase or decrease the death benefit or reduce or extend the term of coverage. Keep in mind, increases in death benefits usually will require evidence of insurability. Each time the policyowner requests a change, the insurance company recalculates the guarantee period.
  3. The flexibility of AL also made it suitable for many business life insurance needs. AL offered a conservative and guaranteed vehicle for all sorts of business applications where the policyowner may frequently require adjustments in death benefits and/or cash accumulations, including split-dollar plans, nonqualified deferred compensation plans, death benefit only plans, key person insurance, buy/sell agreements, retiree benefits funding, and in qualified retirement plans that use insurance.
Reproduced with permission.  Copyright The National Underwriter Co. Division of ALM

Leave a Comment