Adjustable Premium: What It Is, How It Works, Example

Updated September 30, 2024

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Adjustable Premium: An insurance policy's monthly payment that fluctuates over time. — Investopedia / Theresa Chiechi

Definition

An adjustable premium is a flexible payment option in certain life insurance policies that allows the policyholder to modify their premium amounts within limits, based on their financial situation.

What Is an Adjustable Premium?

The term adjustable premium refers to a life insurance policy's monthly payment that fluctuates at the policyholder's discretion. The policyholder is allowed to adjust their payment ღwithin the guidel🅺ines set in their policy. Contracts with adjustable premiums allow policyholders to customize their policies when they experience changes in their lives.

澳洲幸运5开奖号码历史查询:Adjustable life insurance policies allow other features to be adjusted throughout the term of the insurance contract, including the policy's coverage and protection period. However, changing premiums or conditions may affect the policy's cash value over time.

Key Takeaways

Adjustable premiums are fluctuating monthly payments made to the provider of an adjustable, variable, or flexible 澳洲幸运5开奖号码历史查询:life insurance policy.
These premiums vary based on external factors such as interest rates or market performance.
Consumers generally seek adjustable premiums for life insurance policies during times of change or when they require flexibility in their monthly payments.

Understanding Adjustable Premiums

澳洲幸运5开奖号码历史查询:Life insurance is a type of 澳洲幸运5开奖号码历史查询:insurance policy that is paid out upon the insured's death, or after a certain amount of time has passed. Life insurance policies can🍸 vary based on premium amounts and age requirements. For example, some policies allow premiums to be customized and flexible while others have fixed monthly or annual premiums. Life insurance poli𒐪cies generally require individuals to undergo a health checkup, complete with blood work and drug tests. Depending on their health, younger people may pay lower premiums compared to those who are older or in poorer health.

Certain policies allow individuals to take advantage of lower premiums as their circumstances change. These policies are called adjustable, variable, or flexible insurance policies. Features that may be changed include a policy's 澳洲幸运5开奖号码历史查询:face value, the amount of ti🌃me an individual is covered, and how much they pay in premiums. These are called adjustable premiums or variable premiums.

The money from a premium in these insurance policies is split into two components. One portion goes toward the 澳洲幸运5开奖号码历史查询:cash value of your account, where it is invested for returns. Th꧒e other part pays any🎃 costs to maintain and administer the insurance policy.

Warning

Paying lower premiums can reduce the cash value of the policy over time.

Premiums may increase or decrease in these policies based on external factors such as interest rates or market performaജnce. Factors like higher-than-expected maintenance costs on the policy may also cause the rates to increase. On the other hand, increased investment returns from the insurance compan🉐y could lessen the monthly outlay.

Consumers often seek out these kinds𝔍 of policies when they want flexibility in their monthly payments or when they expect their financial situation to change over time and would like to have their payments change with it.

Special Considerations

Adjustable premium policies are com❀mon in the life insurance industry. The opposite of this kind of policy♌ is a fixed premium insurance policy. Fixed premium policies are the most common type of insurance policy.

The terms of an adjustable life insurance policy are determined ahead of time. This means that the adjustable or variable premiums are not a surprise to the insured. The margin for change, though, should be agreed upon at the signꦛing of the enforcement.

Important

You shoul🐷d agree upon the margin of change for your adjustable premiums before you sign up for an adj🌺ustable life insurance policy.

Example of an Adjustable Premium

Let's take a hypothetical example to show how adjustable premiums work. Consider a situation in which you secure a new job, one that pays significantly higher than your previous job. An adjustable premium allows you to increase your premium amount, thereby increasing the amount of money that goes into the cash value component of your policy. This may end up generating more income for you in the long run, as long as markets cooperate.

But what happens if you lose your job andꩲ can no longer pay the full amount of your premium? Having an adjustable policy with adjustable premiums allows you to pay the minimum amount due until you f🍸ind a new job.

Frequently Asked Questions (FAQs)

Can You Cash out an Adjustable Life Insurance Policy?

You can cash out an adjustable life insurance policy either by withdrawing funds from the cash value of the policy or by surrendering the policy altogether. The first option will likely reduce the death benefit by the amount withdrawn, while the second eliminates the death benefit altogether.

What Can Be Changed in an Adjustable Life Insurance Policy?

In addition to changing the premiums in an adjustable life insurance policy, the insured may be able to adjust the death benefit, payment periods, and cash value (by ad🐠ding or withdrawing funds). Some changes, such as adjusting the death benefit, may require additional underwriting.

What Is Permanent Life Insurance?

澳洲幸运5开奖号码历史查询:Permanent life insurance is a policy that covers the insured for that person's entire life, in contrast with term life insurance, which is typically issued for a period of 10, 20, or 30 years. Permanent life insurance often has a cash value that the policyholder can cash out or borrow against.

Types of permanent life insurance include澳洲幸运5开奖号码历史查询: whole life, which guarantees the savings portion of the policy for its entire term, and 澳洲幸运5开奖号码历史查询:universal life, which includes adjustable premiums. Adjust𝄹able premiums may fluctuate with the market𒊎, as well as at the discretion of the policyholder.

The Bottom Line

Adjustable premiums are life insurance premiums for certain types of policies including adjustable, variable, or flexible life insurance. This type of premium allows policyholders to change the amount of their premium payments based on their financial circumstances. However, paying smaller premiums may affect the policy's cash value over time.

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