Adjustable Life Insurance
Adjustable life insurance allows a policyowner to make changes in the face amount, amount of premium payments, the length of protection, and the type of protection being 
provided. Adjustments may be made to the basic features of the life insurance policy, but this contract does not offer flexible interest rates or equity investments.
All of these changes may be made without having to complete a new application, drop or exchange any policies, or even have a new policy issued.
The flexibility of adjustable life is accomplished by allowing conversion from one form of insurance to another, and by making appropriate premium adjustments, if necessary. Whenever an adjustment in coverage is made which increases the amount of the death benefit, proof of insurability may be required before the additional coverage amount is approved. Request a FREE Life Insurance Quote
Universal Life Insurance
Universal life is permanent life insurance, it can serve the needs of individuals and businesses just as whole life has done for many years. However, the flexibility of universal life adds a new dimension to fitting the coverage to the changing needs of the insured.
Our financial climate has changed, and life insurance has had to change with it, in large part because of the intense competition for the dollars available for investment. As inflation and interest rates soared, some financial writers suggested that life insurance buyers purchase low-cost term insurance and put their savings where the return was better. They suggested that the client separate the protection and savings elements of a cash value policy: "Buy term and invest the difference!"
The concept of universal life insurance developed in the late 1970s from the idea that the two components of a whole life policy's death benefit - the pure protection and the cash value-could be formally separated, giving the policyowner greater control over the funding of the cash value.
Universal life policies enjoyed a surge of success during the mid 1980s when high interest rates were widely available. Sales of universal life products grew at the expense of whole life sales. Since that time, interest rates have dropped dramatically, and universal life sales have fallen while whole life sales recovered much of their former market share.
Universal life insurance is a flexible premium policy that has an investment feature and separates the protection, savings, and expense components. The policy has a guaranteed minimum interest rate and guaranteed cash values. The policy also provides for the crediting of the cash value account with excess interest based on a higher current market rate of interest. Universal life insurance allows adjustments in the benefit and premium amounts, and also offers competitive interest rates on cash value. The distinctive feature of this contract is the variable rate of interest is provided.
Universal life is widely used as a funding vehicle for split dollar and salary continuation/deferred compensation plans. The flexibility of the contract and the high potential returns make the policy appealing to both the employee and the employer.
Universal life insurance has become popular in recent years. Universal life policies are frequently sold as an investment that combines life insurance protection with savings. The policyowner has a cash value account that is credited with the premiums paid less a deduction for the cost of the insurance protection and expenses charged. The balance in the account is then credited with interest at a specified rate. If the policy is surrendered, the cash value account may be reduced by a surrender charge.
One of the potential disadvantages of universal life policies is that they may not perform as expected. When originally introduced, some companies promoted them by using long-range projections of very high interest rates (12 percent to 15 percent). Rates have now fallen so much that actual returns will be considerably lower. Even though agents and companies may warn that projections are not guarantees, overly optimistic projections can only lead to consumer disappointment when actual results are less favorable. Agents must be extremely careful to provide reasonable expectations. Request a FREE Life Insurance Quote
Inflation
Universal life insurance was developed in response to the relatively low interest rates (generally 3 1/2-5 percent) earned by traditional whole life insurance cash values, which made the whole life product less attractive during periods of high inflation. In order to be more competitive, insurers introduced universal life policies which might pay higher interest rates (such as 8 percent, 10 percent or even 12 percent) during inflationary times. These policies also provide greater flexibility, because they allow policyowners to adjust the death benefits and/or premium payments.
The effect of inflation on insurance face amounts and savings is well-documented. A policy having a fixed death benefit, purchased now, may very well be wholly inadequate 20 years from now. Also, the guaranteed interest rate in such fixed death benefit policies often falls short of keeping pace with current interest rates.
Universal life, however, can provide the flexibility to cope with inflation, and does this in large measure automatically because of the tax-deferred accumulation of cash values at current interest rates. Should the policyowner wish to increase the death benefit, it may be done, although proof of insurability may be required. Universal life insurance features competitive current interest rates to help keep pace with inflation.
Cash Accumulation for Retirement
People who plan for retirement really have two problems: they must provide life insurance protection for their beneficiary now, while at the same time, accumulate cash value for the future. Whole life insurance will accumulate cash value. However, few nonparticipating policies can match universal life. Participating policies may be able to achieve good returns but do not have the same premium flexibility as universal life. A whole life policyowner can only withdraw any dividend credits. To get more money out of this type of policy, either the insurance coverage would have to be surrendered or policy loans would need to be made, on which interest must be paid or accumulated. In addition to these methods of obtaining funds, a universal life policyowner can also withdraw the cash value without paying interest or surrendering the policy. Request a FREE Life Insurance Quote
