 Personal Finance PowerPoint Presentation, adjustable life insurance, prepare to get financially fit by practicing personal finance. Insurance is part of our long-term risk mitigation strategy where we follow the adage of measure twice, cut once, put in a formal process in place, look in something like set the goals, develop a plan to reach them, put the plan in action, review the results and repeat the process periodically. Most of this information can be found at Investopedia Adjustable Life Insurance, which you can find online. Take a look at the references. Resources continue your research from there. This by the Investopedia team updated April 26, 2022. In prior presentations, we've been taking a look at insurance in general, then moving on to the life insurance, talking about the different kinds of life insurance, including the two major categories of life insurance, that being the term or pure life insurance and the permanent life insurance. And I would always be comparing to basically the pure life insurance as kind of your baseline comparison whenever you're digging deeper into the different types of life insurance. So what is adjustable life insurance? Adjustable life insurance is a hybrid of term life and whole life insurance that allows policyholders the option to adjust policy features, including the period of protection, price amount, premiums, and length of the premium payment period. So obviously you've got the more flexibility. If you have the more flexibility, then you would think that more risk would be going on to the insurance company in that case. And possibly it might cost a bit more than, say, pure insurance, such as straight term life insurance. So adjustable life policies also incorporate an interest-bearing savings component, known as a quote, cash value, end quote, account. Adjustable life insurance differs from other life insurance products in that there is no requirement to cancel or purchase additional policies as the insurance circumstances change. It is attractive to those who want the protection and cash value benefits of permanent life insurance yet need or want some flexibility with policy features. Using the ability to modify premium payments and face amounts, policyholders may customize their coverage as their lives change. For example, a policyholder may want to increase the face amount upon getting married and having children. So you might want an adjustment of the amount given the circumstances in the life, of course. So an unemployed person may want to reduce premiums to accommodate a restricted budget. So obviously if the life circumstances happen such that you don't have as much income then you might want to be reducing the premiums. As with other permanent life insurance, adjustable life insurance has a saving component that earns cash value interest usually at a guaranteed rate. Policyholders are permitted to make changes to critical features of their policy within limits. They may increase or decrease the premium, increase or decrease the face amount, extend or shorten the guarantee protection period, and extend or shorten the premium payment period. Adjustment to the policy will alter the guaranteed period of the interest rate and changes and the length of the guarantee will change the cash value schedule. Decrease in the face amount is done upon request or in writing. However, increase in the face amount may require additional underwriting with substantial increases requiring full medical underwriting. So that would make you go through the whole kind of process for the underwriting, the medical kind of check to see if there's any kind of circumstances which would possibly increase the amount of the premiums due to added risk on the insurance company side of things. Factors that can be adjusted, three factors can be changed in an adjustable life insurance policy. These are premiums, cash value and death benefits. So once again, premiums, the amount that you pay of course, the cash value is going to be kind of like that investment side or investment component of the permanent life insurance, and then the death benefits, which are the benefits at death. So all three elements can be adjusted because this policy is a permanent life insurance policy and does not expire like a term life policy. Premiums can be changed by frequency or amount of payments as long as you pay above the minimum cost. The policies cash value can be increased by upping your premium payments. So if you increase the premium payments, then you're going to be covering the amount that's going to be paying for basically the insurance, the difference then possibly increasing the cash value component, which is kind of that investment component. You can decrease your cash amount if you withdraw funds or use the cash and the policy to pay the premiums. Finally, you can adjust your death benefit by decreasing or adding to the amount. If you decide to add a significant amount to the death benefit, the amount that actually gets paid off if you were to die, due to a life event like the birth of a child, your premiums may go up based on the new benefit amount. So obviously, if you say, hey, I want more coverage on the life insurance side of things because I got more people dependent upon me at this point in time, it could have an impact on the premiums. In some cases, your policy will have to undergo additional underwriting. So advantages and disadvantages of adjustable life insurance. Adjustable life insurance gets policy holders more flexibility than term life insurance. So clearly the term is what we're always comparing to and that's just the pure kind of life insurance. I'm buying life insurance for life insurance sake. I don't have any kind of investment component to it and I'm going to try to estimate when or the period in which I need coverage and that's usually when people are going to be dependent upon me and that's usually why it's going to be a cheaper kind of insurance and then you always have the adage of should I just buy standard, the cheapest kind of life insurance term, life insurance, pure life insurance and then invest the difference somewhere else possibly getting tax advantages in something like a 401k or something like that or are there some of these added benefits to these other more complex insurance policies that give that give me some rationale such as further tax savings or estate planning or some some other security such as that. So but so once again adjustable life insurance give policy holders more flexibility than term life insurance but it is more expensive than a simple 20 or 30 year term policy if you plan on using adjustable life insurance as an investment vehicle you may be better off with a tool that earns more interest. So clearly if you're thinking about the investment side of things as an investment then usually you might be able to invest the difference by buying the term insurance and possibly get more exposure to possibly larger returns for example. So adjustable life insurance only provides modest amounts of interest growth. So what are the pros here? You got cash value grows over time so they got that investment component to it you can decrease or increase your death benefit which is nice that flexibility is good but you can also kind of buy more life insurance in the event that you need more life insurance for example although if you were to do that on a term basis that would mean you'd have to go through the whole process at the point in time you need it which means you'd be older so as you get older the insurance costs more so the most flexible the most flexible of all types of life insurance you got that flexibility cons is expensive to purchase so clearly with all that flexibility comes expensiveness you got it you got in order to be flexible you got to like stretch a lot which that's a lot of time you got to put into that. So interest earning may be modest and if you largely increase your death benefit your premiums may rise so obviously if you flex the death benefits upward then you're going to be paying more premiums you would think guidelines for life insurance policies and riders internal revenue code IRC section 7702 defines the characteristics of and guidelines for life insurance policy schedule C of this section provides guidelines for premium payments. The policy holder may not adjust the premiums in a manner that violates these guidelines increasing premiums may also increase the face amount of the point to the point that it requires evidence of insurability. However many life insurers set parameters to prevent violations adjustable life insurance policies typically have optional riders familiar familiar ones include the waiver of premium and accidental death and dismemberment riders we might go into the riders in a bit more detail in future presentations what is the difference between adjustable life insurance and universal life insurance let's wrap this thing up adjustable life insurance is another name for universal life insurance there's no difference between them because they are the same type of policy what does an adjustable life life policy allow a policy owner to do an adjustable life policy allows a policy owner to make changes to the death benefit amount adjust their payment on their premiums and add money or remove money from the cash value so what is credit life insurance what is credit life insurance credit life insurance may be offered when you take out a large loan such as a mortgage this type of life insurance is used to pay the loan off if the borrower dies before the loan is repaid in other words you might be saying I'm gonna try to tie my life insurance basically to my mortgage in a sense right because if I were to die usually when you look at people's lifespans they're gonna go through a period of their life when they start a family possibly that's when they're gonna be more in debt and then towards the end of their life hopefully they pay off the debt and they have more assets right so during that point in time when you've got the family and you've got the more debt you got the mortgage then possibly you might have insurance to say well if I die I would like something to kind of pay off the mortgage you might have your life insurance kind of tied to or in alignment with focused on the mortgage so for example if you co-sign a 30 year mortgage with your spouse and your spouse dies 10 years into the mortgage the mortgage will be paid in full by the credit life insurance policy which would be nice credit life insurance I can protect co-signers who partners our spouse or spouse might not be able to afford to keep up with payments on their own so what's the bottom line then with all this stuff adjustable life policies provide the flexibility that most traditional policies do not however the frequency of allowable adjustments is restricted within a set time frames requests must be made within an allotted period and meet the guidelines set by the insurer the variability and adjustments can create a policy that mirrors either term life insurance or whole life insurance effectively adjustable life insurance policies allow policyholders to customize their life insurance to meet current or anticipated needs as with any kind of permanent life policy it's critical to research every firm that's being considered to ensure that they're among the best life insurance companies currently operating so when you're talking about life insurance when you're talking about someone who's selling life insurance for example you want to make sure you do your own research possibly getting some recommendations from a third party who is not going to be benefiting in any financial way for you to buy life insurance like a CPA or a lawyer or something like that a family planner a financial planner that's not tied to the actual policy and making a commission on the policy think about what your best options are arm yourself with that understanding then talk to the insurance companies and look for the companies that are appropriate given your goals your strategies your needs