Adjustable Life (AL) insurance is cash value life insurance that is designed to adjust along with your ever changing life insurance needs. When AL was introduced in 1972, the concept was, “tell us how much death benefit you want and how much you want your payment to be and we will enter that information into the computer using the current interest rates and tell you how long the coverage will last.”  

An AL insurance policy is considered a fixed product. The portion of your premium that becomes the cash value in your policy is managed within the general account of the insurance company which means the insurance company takes the risk since it pays a fixed amount of interest for specified periods of time.

 A young person in their 20’s or 30’s can get a high death benefit for a low premium but as the insured gets older and as the cost of insurance goes up, it may be necessary to fund the adjustable policy with a higher premium to keep the policy in force in later years.

 Most people however, find that they need less insurance as they get older, no longer have a home mortgage and their children are no longer dependent on their income.  At that point, an adjustable life insurance policy will allow the policy holder to reduce the death benefit so that either the payment will be reduced or will stay the same.

AL insurance protects the policy holder’s insurability, meaning, even if your health were to become uninsurable, as long as you keep your policy in-force by funding it properly you cannot be denied for coverage. The interest that is paid on the cash value in adjustable policies is based on short term interest rates.  During parts of the 1980’s and 1990’s adjustable policies were paying close to 10 percent interest.

As those interest rates were reduced in these adjustable policies, the guarantees in these policies were reduced as well. This is not a pleasant situation for the policy holder or for the insurance agent to have to deal with.  In 2009, some of these policies are paying 5 percent.

 This could be ideal timing for a person who is contemplating buying an adjustable policy. When buying stocks the ideal situation is to “buy low and sell high.” If you purchase an adjustable policy when it is paying a low interest rate, at least you know that the guarantees are based on a low number that is sustainable and not on an inflated number that will likely come down. Working with an insurance advisor who understands the inner workings of adjustable policies is a good idea.

Adjustable Life Insurance Does:

• Allow changes in face amount and premiums     
• Build cash value with tax deferred growth 
• Allow you to borrow from the cash value

Adjustable Life Insurance Does Not:                               

• Allow you to manage the investments