What are the features of adjustable life insurance?

Flexible-Premium Adjustable Life Insurance

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

First, we need to look at what is universal life insurance. Then, further define a variety of universal life called flexible premium adjustable life insurance.

What Is Universal Life Insurance?

Universal life insurance is more expensive than term insurance because of the cash value component.

The extra ‘expense’ goes into building your cash value, which acts as a forced savings account that can be borrowed against in the future.

There are a few variations of universal life, including flexible premium adjustable life, interest-sensitive universal life, and variable universal life.

What is Adjustable Life Insurance?

Flexible premium adjustable life insurance policies were popular in the 1980s and 1990s, but it is still sold by some companies today.

Adjustable life insurance purchased decades ago typically did not have a guaranteed premium. If interest rates changed, the risk fell on the insured to make up the difference in premium.

When you contribute premiums, the insurance company deducts for expenses, including the cost of the death benefit. The rest of the money stays in the policies cash value earning interest to help pay future fees.

Unlike whole life’s guaranteed cash value, flexible premium adjustable life insurance has a fluctuating interest rate on the money contributed towards the policy’s cash value. 

Would you like “new” guaranteed universal life rates?

We’ve got you covered!

Please don’t hesitate to use our universal life insurance calculator.

Universal Life Insurance Calculator

Problems with Adjustable Life Insurance

Policies sold during this period of historic double-digit interest rates are now crediting much lower interest rates. As interest rates fell, insurers’ investment returns could not keep up with the premium projections.

An extremely long period of low-interest rates has caused a shortage in policyholder cash values requiring additional payments to maintain coverage.

Insurers say they had to reduce interest payments on adjustable life insurance policies when their investment portfolios’ yields fell.

Now, many policyholders are getting notices that their flexible premium adjustable life cash value is spiraling downward, which increases premiums and can cause policies to lapse or implode.

Furthermore, a long period of low-interest rates undermined millions of adjustable life insurance policies sold when rates were at all-time highs.

Insurers designed these policies around the false promise that healthy investment earnings would keep these policies in force as long as you live.

Many mentions of the subject are on the internet, including a Forbes article covering falling interest rates causing increasing premiums for policyholders.

However, many life insurance companies do not widely publicize this problem for fear of jeopardizing their reputation.

Please don’t pull your hair out just yet; there are a few different solutions to this problem!

Fixing your Adjustable Life Policy

Has your adjustable life policy gone off course? It is not too late to begin smooth sailing again!

All adjustable life insurance policyholders receive an annual statement showing how their policy performs over time.

These statements can be confusing, and may not have the proper information to make an informed decision.

You should pay special attention to your flexible premium adjustable life cash value performance.

Your adjustable life illustration will contain a current interest rate and the minimum interest rate column.

If it looks like your adjustable life cash value is going down, it is time to take action!

Many policyholders make a more educated evaluation by contacting a life insurance specialist to conduct a policy audit.

Here is how a life insurance specialist can help you with your adjustable life policy.

1. Evaluate Current Coverage

First, the specialist will work with your existing life insurance company to evaluate “in-force” illustrations with your current adjustable life policy under different scenarios.

• What is your cash surrender value?
•  How long will your adjustable life insurance policy last, assuming you keep paying the current premium?
• How much more would you pay to maintain the current benefit until your target age?
• How much would a smaller death benefit cost you?
• If your insurer is crediting your policy with more than the minimum guaranteed return, a guaranteed illustration so that you will have a worst-case scenario.

Secondly, we will conduct a market evaluation to determine if a newer policy would be more beneficial.

• How is your overall health to qualify for new coverage?
• Illustrations will be created on the new guaranteed premium policy for the death benefit you require without using your policy’s cash surrender value.
• Illustrations will be produced on the new guaranteed premium policy for the death benefit you require by transferring your using existing policy’s cash surrender value.

New policies are also medically underwritten, so checking whether you qualify for coverage is vital.

First, your general medical history is assessed to determine which company may be best suited for your particular medical history.

Some companies require a brief examination, while other carriers have a faster no-exam process to qualify for new coverage.

Okay, I qualify for new coverage. Now, what are my options?

1. Cash Out, Buy New Coverage

So, your first option would be to keep your cash value and buy a new policy with higher premiums.

You can withdraw any cash surrender value from your current adjustable life policy.

You may ask, what is my adjustable life’s cash surrender value?

The cash surrender value of your life insurance policy is calculated by taking your cash value and subtracting any surrender charges, withdrawals, or loans against the policy.

2. Transfer using a 1035 exchange

Another option would be to transfer your existing adjustable life policy cash value using a 1035 tax-free exchange.

What is a 1035 Exchange?

The IRS’s section 1035 exchange of life insurance falls under IRC section 1035. A section 1035 exchange occurs when the cash in an existing life insurance policy is transferred to a new one without taxation.

Following the 1035 exchange rules, you can directly transfer the money from your old interest-sensitive life insurance policy into a cheaper contract.

This strategy could lower or eliminate your future premiums and prevent potential taxes by surrendering your flexible premium life insurance policy.

You can transfer money into a single premium or a limited pay life policy that will eliminate or reduce future payments and eventually pay a smaller death benefit.

A hybrid long-term care insurance policy is a popular and predictable way to cover long-term care expenses.

You can transfer the money from your old policy into a new hybrid long-term care policy that pays a death benefit when you die and nursing care if required.

These newer insurance plans offer premiums and death benefits contractually guaranteed not to change.

Which is the best option for you?

If your need for life insurance has changed, you might get by keeping your adjustable life insurance active with a smaller face amount.

More likely, though, your choice will be either to boost the premiums on your current death benefit or to shop for a new policy.

Today’s insurance buyers are lucky because 35 states have adopted rules that would require more realistic life insurance illustrations.

Universal life policies now include a worst-case scenario and a projection based on interest rates halfway (midpoint) between current and minimum rates.

So, this is good news for modern-day applicants, who now have more transparency, cheaper premiums, and guaranteed lifetime coverage.

But, policyholders of older adjustable life policies may still be sitting on ticking time bombs.

New Guaranteed Universal Life

We use a very detailed process when shopping for guaranteed universal life insurance for our clients.

Every life insurance company does not offer these new guaranteed universal and indexed universal life policies.

The contractual guarantees offered with these policies eliminate many smaller companies which lack proper cash reserves to honor these long-term commitments. 

Guaranteed Universal Life insurance for seniors over 70 offers a predictable way to pay final expenses.

Universal life insurance is an asset for affluent people looking to create an estate for their families.

We have streamlined shopping for the best type of life insurance and monitor a network of many highly rated companies.

We monitor life insurance companies’ financial strength and claims-paying ability using several rating agencies such as A.M Best, S&P, Fitch, and Moody’s.

The life insurance companies listed below offer the best combination of ratings, guaranteed product design, underwriting fairness, and inexpensive rates.

Best Universal Life Companies

What Does Universal Life Insurance Cost?

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