Guardian Life Logo
login

Adjustable life insurance (also known as universal life insurance or adjustable universal life insurance) is a flexible form of permanent life insurance coverage.1 It allows the policyholder to adjust key factors, including the death benefit and premiums, as their financial situation changes over time.

This simple guide will explain adjustable life insurance and help you decide if it’s right for you. You’ll learn:

Get an instant Adjustable Life quote

Go now

How does adjustable life insurance work?

Adjustable life insurance, also known as universal life insurance, is a form of permanent life insurance. In this way, adjustable life insurance is similar to whole life insurance because they both provide lifelong coverage (so long as premium payments are made) and will pay a death benefit to your beneficiaries regardless of when you pass away.2

The primary difference is that adjustable policies offer a level of flexibility that whole life plans don’t. With adjustable life, the policyholder can adjust the premiums, death benefit, and cash value component details throughout the life of the plan.3

One of the main considerations of this flexibility is that the costs and benefits of the policy can be adjusted as your financial situation changes.

Adjusting premiums

While most forms of life insurance have fixed monthly or annual premiums that must be paid, an adjustable life insurance policy gives you more flexibility.

For example, you could start with low premiums when you’re early in your working career, and then increase them for greater life insurance coverage as you begin earning more. Or, you could start with higher premiums and coverage when you have young children, then cut back after your children become financially self-sufficient.

Many adjustable policies allow you to pay larger lump-sum payments, skip payments, or increase/decrease payment amounts at any time. This gives you a lot of flexibility to adjust to changes in your budget and household finances. It can also help prevent policy lapse, letting you keep a policy active even if you need to lower or skip payments temporarily (after a job loss, for example).

Adjusting the death benefit

The life insurance death benefit, also known as the face amount, is the financial sum that the insurance company agrees to pay out to beneficiaries should the policyholder pass away. For example, a policy may have a death benefit of $500,000 — meaning that if the policyholder passes away during the coverage period, the plan’s beneficiaries would receive $500,000.

Most forms of life insurance have a fixed death benefit that is determined when the policy is purchased. With adjustable life, however, the face amount can be changed by the policyholder over time. You can increase the death benefit (which will also increase monthly premiums) or decrease it (which will lower monthly costs).

Keep in mind that significant changes to the death benefit amount may require additional underwriting from the life insurance company. This can take time and may result in processing fees.

Adjusting the cash value allocation

The cash value is a component of certain life insurance policies that grows in value over time. A portion of each premium payment goes into this cash value account, and policyholders can eventually borrow against it or use it to pay premiums, depending on the policy’s terms.

With adjustable life, you can increase or decrease the cash value allocation to contribute more or less to this fund. If you increase contributions, you’ll have more to tap into later4 — whereas if you decrease contributions, you’ll have lower monthly premium payments now.

What are the advantages of adjustable life insurance?

It’s helpful to weigh the pros and cons of adjustable life insurance before selecting this type of policy. These are the primary advantages of adjustable life policies:

  • Premium flexibility: Policyholders can modify their premium payments over time to adapt to changes in their budget or financial situation.

  • Adjustable death benefit: The death benefit or face value can be increased or decreased to meet changing financial needs. For example, a policyholder with children may choose to lower the death benefit amount once their children become financially independent.

  • Lifetime coverage: Like whole life insurance, adjustable life covers you for your entire lifespan (as long as premium payments are made and the policy doesn’t lapse). This contrasts with term life insurance, which only covers you for a specific period.

  • Cash value growth: Adjustable life policies include a cash value component, which can grow over time. And because the allocation is adjustable, you can increase it when you’re able to, helping grow your wealth faster.

  • Potential tax benefits: The death benefit of a life insurance policy is generally tax-free to beneficiaries, helping pass down wealth in a tax-efficient manner.5 Cash value also grows tax-deferred, meaning you don't need to pay taxes on growth until the policy is eventually cashed out.

Disadvantages of adjustable life insurance

There are some downsides to consider, as well, depending on your circumstances.

  • Higher premiums (compared to term life insurance): Adjustable life insurance policies, and other forms of permanent life insurance, generally have higher premium costs compared to term life insurance. This is especially true if you select a higher death benefit amount.

  • More complexity: While flexibility in adjusting plan features is beneficial, it can also make managing your plan more complex.

  • Risk of policy lapse: While adjustable life allows you to lower premiums or even skip payments, you still need to meet certain minimum thresholds to keep your policy active. If you don't meet the limits, the policy could lapse.

  • Changes can impact death benefit: Making changes to your policy — like lowering your premiums or borrowing against cash value — can potentially decrease your death benefit. It’s important to understand how these changes impact your plan before you make any major adjustments.

  • Potential fees: Some policies have additional fees for changing policy details, altering premium amounts, or changing the death benefit.

Is an adjustable life insurance policy right for you?

The best way to determine the right type of life insurance for your needs is to consult with a qualified financial professional. Working with a professional can help you understand all your options and customize a plan that’s best for your specific circumstances.

In general, adjustable life policies may be worth considering for:

  • Households that expect financial changes over time: The adjustable nature of these policies makes them a good fit for households expecting to earn more, or less, as the years progress. Examples include people very early in their careers, or those approaching retirement.

  • Households with young children: Many parents choose to take out life insurance policies with large death benefits, to financially protect their children in the case of a parent’s untimely death. Once children become adults and start earning their own incomes, however, that large death benefit becomes less necessary. With adjustable life, parents could choose to lower their death benefit (and therefore lower premiums) once their children become adults.

  • Households with variable income: If your income varies from month to month (or year to year), the flexibility of adjustable life can be beneficial. Self-employed individuals, business owners, freelancers, seasonal workers, etc., can all benefit from the flexible nature of these adjustable life insurance policies.

  • Households with more involvement in financial planning: Generally speaking, adjustable life insurance requires a bit more maintenance over time, compared to whole life policies. Households that actively manage their finances and investments may be more equipped to adapt to managing an adjustable life insurance policy, as well.

How to buy adjustable life insurance

Purchasing adjustable life insurance involves researching providers, obtaining quotes, and applying for coverage. Be sure to work with a trusted and well-established life insurance company.

With Guardian, you can work directly with a financial professional to explore your options and customize the right coverage for your needs.

Need some help?

Find a financial professional near you who can help

Frequently asked questions about adjustable life insurance

Adjustable life insurance is a form of permanent life insurance. Like whole life insurance, it provides lifelong coverage and will pay a death benefit to your beneficiaries when you pass. Adjustable life differs from whole life in that it allows policyholders to change policy details over time. Premiums, death benefits, and cash value allocations can all be adjusted to meet changing financial needs or household budgets.

The covered individual cannot be changed once an adjustable life policy is purchased. For example, if you take out a policy to insure yourself, you cannot transfer that policy to cover your spouse. Additionally, some policies do not allow the type of investment component to be modified once the policy is in place.

This article is for informational purposes only. Guardian may not offer all products discussed. Please consult with a financial professional to understand what life insurance products are available for sale.

1 A Universal Life Insurance (UL) policy provides a flexible premium, choice of death benefit options, and a guaranteed crediting rate e.g. 2%). Policy growth is based on adequate funding, increasing crediting rates, and if costs of insurance is lower than expected. If any of the three factors just mentioned are lower than expected (policy funding and crediting rates), and/or higher than expected (cost of insurance), the policy may lapse.

2 All whole life insurance policy guarantees are subject to the timely payment of all required premiums and the claims paying ability of the issuing insurance company. Policy loans and withdrawals affect the guarantees by reducing the policy’s death benefit and cash values.

3 Some whole life polices do not have cash values in the first two years of the policy and don’t pay a dividend until the policy’s third year. Talk to your financial representative and refer to your individual whole life policy illustration for more information.

4 Policy benefits are reduced by any outstanding loan or loan interest and/or withdrawals. Dividends, if any, are affected by policy loans and loan interest. Withdrawals above the cost basis may result in taxable ordinary income. If the policy lapses, or is surrendered, any outstanding loans considered gain in the policy may be subject to ordinary income taxes. If the policy is a Modified Endowment Contract (MEC), loans are treated like withdrawals, but as gain first, subject to ordinary income taxes. If the policy owner is under 59 ½, any taxable withdrawal may also be subject to a 10% federal tax penalty.

5 Guardian, its subsidiaries, agents and employees do not provide tax, legal, or accounting advice. Consult your tax, legal, or accounting professional regarding your individual situation.