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Adjustable life insurance

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When it comes to life insurance, key policyholder choices usually have to be made on the front end. A variety of policy types are available to choose from, and in most cases, you get what you agreed to at the outset. An adjustable life insurance policy is an exception to this norm. 

With these policies, also known as flexible premium adjustable life insurance, the policyholder retains a significant amount of control. This article explores what adjustable life insurance policies are, how they work and when they might be a better fit than other life insurance options.

How does adjustable life insurance work?

Adjustable life insurance is a type of permanent life insurance. Permanent life insurance lasts for the duration of the insured’s life, provided the premiums are paid on time. When the insured passes away, the insurance company makes a payout (also called a death benefit) to the beneficiaries listed in the policy.

Where adjustable life insurance policies differ from other life insurance types is in their ongoing flexibility. Policyholders retain options for customization even after the plan is initiated. These options include altering the size of the death benefit, the cost of premiums and the policy’s cash value. Keep in mind that modifying any of these variables can also alter others. For example, if you choose lower premiums, it may also lower the death benefit and the cash value.

The downside of such a customizable policy is that adjustable life insurance tends to cost more than less-flexible insurance plans. And while these policies allow significant flexibility, the insurance company sets the initial terms for how often and how much a customer can alter the policy.

Adjustable life insurance benefits

With these policy types, there are three primary benefits for the customer when compared to less flexible forms of life insurance. Each of these benefits is interlinked with the others, such that altering one will likely change the rest, to varying degrees.

Death benefit

The death benefit is the amount that the insurance company will pay to the policyholder’s beneficiaries if the policyholder dies. With adjustable life insurance, the policyholder can choose to adjust this amount even after the policy has gone in force. If the death benefit is increased, the premiums will likely increase as well.

Cash value

Adjustable life insurance policies typically have a cash value component. A portion of your premiums goes towards investments that are attached to the plan. The value of these investments is represented as the cash value of your policy. Adjustable life insurance policies allow the policyholder to alter the extent of investment. Keep in mind that increasing the cash value of a policy will likely reflect higher premiums.


Premiums may be unavoidable, but with this type of life insurance, you maintain some control over how costly your premiums are. Although it will affect the death benefit and the cash value, you can opt for lower premiums. Inversely, you may opt for higher premiums to see an increase in the death benefit and cash value.

What is flexible premium adjustable life insurance?

Flexible premium adjustable life insurance is another way of referring to adjustable life insurance. Both terms refer to the same types of life insurance policies. One style of reference focuses on the flexibility of premiums because that is a key benefit to this policy type.

Pros and cons of flexible premiums

Like most life insurance, adjustable life insurance has some elements in its favor, and some against. The most significant upside of these policy types is flexibility, but that can also contribute to a few barriers. Below is a summary of the flexible premium adjustable life insurance advantages and drawbacks.

Adjustable life insurance pros and cons

Flexible premiums Higher premiums than term life insurance
Flexible cash value Cash value is dependent on investments
Can borrow against the policy Interest paid on these loans is often non-deductible
Can withdraw from the cash valueThese funds may be subject to taxes
Flexible death benefit 


As the name implies, flexible premium, or adjustable life insurance allows the customer to choose higher or lower premiums at numerous points throughout the policy’s life. These plans also come with a flexible cash value component. You can opt for higher premiums and use them to increase the policy’s cash value. You may borrow against this cash value from the insurance company and even make limited withdrawals from it.


When comparing the size of the death benefits, adjustable life insurance policies tend to have higher premiums than term life insurance policies. The cash value of these policies is dependent on the performance of the investment portfolio associated with them. Withdrawing funds from the cash value may be a form of taxable income, depending on the circumstances. If you take out a loan against your policy, interest payments on that loan are often non-deductible.

Adjustable life vs whole life insurance

Both types of policies share several characteristics. Each is a form of permanent life insurance, meaning it can last until the insured individual dies. Both types have cash value components, and each requires the ongoing payment of premiums to remain active.

The difference between adjustable life and whole life insurance often comes down to flexibility. Whole life insurance has a fixed interest rate on the cash value component, a fixed death benefit and fixed premiums. In contrast, adjustable life has investment-dependent interest rates on the cash value component, flexible death benefits and flexible premiums. The table below further demonstrates the differences.

Adjustable life vs whole life insurance

Adjustable life insuranceWhole life insurance
DurationLife, or as long as payments continue.Life, or as long as payments continue.
Death benefitPaid upon death and can be increased or decreased during the life of the policyholder.Paid upon death and fixed during the creation of the policy
Guaranteed cash valueNoYes
Cash growthInvestment-dependentFixed

Adjustable life vs term life insurance

Both policy types provide a death benefit, or payout, if the insured dies while the policy is in force. Both plans require premium payments to be paid to keep the policy active. Beyond these commonalities, the two policy types begin to differ significantly.

First, term life insurance is only good for a predetermined period of time (term). In contrast, adjustable life insurance is good until the insured dies (as long as the premiums do not lapse). Second, many variables of term life insurance are fixed when the contract is signed. In contrast, adjustable life insurance can be altered even after it has gone into force. Third, adjustable life has a cash value component while term does not. Lastly, adjustable life tends to cost more in premiums for an equivalent death benefit than term insurance.

Adjustable life vs term life insurance

Adjustable life insuranceTerm life insurance
DurationLife, or as long as the premiums are paidA specified amount of time, so long as the premiums are paid
Death benefitFlexibleFixed
Guaranteed cash valueNoNo
Cash growthVariableNone

Who should buy adjustable life insurance?

Adjustable life insurance may be a good choice for those who are uncertain of what their future holds. The nature of these policies allows you to adjust them according to your needs, within limits. If a particularly rough year leads to less income, you could request a lower premium with these policy types. Once your income is back on track, you could then ask to increase the premiums again. Keep in mind that an alteration in premiums will typically be reflected in the policy’s death benefit and cash value components.

These policies can also be useful for those who have maxed out other avenues of investment savings. The cash value of these policies can be tax-deferred in some circumstances.

Is adjustable life insurance worth it?

For many people, a term life insurance policy may make more sense. Term life often has cheaper premiums per dollar of death benefit than adjustable life insurance does. However, suppose you want ongoing flexibility and choice within your life insurance policy. In that case, a flexible premium adjustable life insurance policy could be worth it.

The takeaway

  • Adjustable life insurance allows for ongoing customization over the life of the policy.
  • These policies blend elements of term and whole life insurance.
  • Flexible life insurance policies have a cash value component.
  • These types of plans are generally more expensive than term life insurance.

 Adjustable life insurance policies provide ongoing customization for the policyholder. However, this flexibility tends to come with higher premiums than might be found with a term life insurance policy of similar death benefit size. For some, the increased cost is worth the ability to continue adapting their life insurance policy to their life circumstances.

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