Adjustable Life Insurance is often referred to as Universal Life Policy, and it is often described as permanent life insurance. These types of insurances are designed to have flexible premiums, as well as, benefits in the case of death.
They are considered to be a better option than whole life insurance because of the minimum interest rate, premium benefits, and benefits in the case of death.
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How Does Adjustable Life Insurance Work?
The first thing that you do when purchasing this type of insurance policy is choosing the benefit, which is a tax-free sum paid to your spouse, or loved one, in the case of death.
The amount which you pay each month depends on your age, health status, and the number of death benefits. Each month you pay a premium sum which a portion of it goes to pay for the insurance itself and any other fees that might be involved, while the rest of it is invested into the cash value. With each passing month, and as you grow older, the cost for the insurance decreases, and more money goes into the cash value. These types of insurances are adjustable, and they earn interests differently than most insurance. But one thing is certain, and that is the death benefits. In the unwanted case of your passing, your beneficiaries get the death benefit and the remaining cash value.
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The Types of Adjustable Life Insurance
With adjustable life insurances, there are 3 main types of insurances. Namely, the only difference between the three of them is how the interest rate is calculated to the cash value.
• Guaranteed Universal Life
The first type of Adjustable Life Insurance is the Guaranteed Universal Live, which is most similar to a whole life policy. This is because, with this insurance, you get a guaranteed premium option, as the name suggests. The interest rate is solely based on a rate that is set by the insurer himself, and that is based on the investment portfolio of the company itself.
• Indexed Universal Life
The Indexed Universal Life is a type of adjustable insurance policy which interest rates are tied very closely to the market index. S&P 500 and Nasdaq are the two markets that dictate the interest rate of this insurance policy. While death benefits are guaranteed, as with Guaranteed Universal Life, the premiums are not.
The indexed universal life insurance policy has a capped interest rate mostly of 11% – 12% annually. The interest rates are relatively small, but they come with a guaranteed floor so you cannot lose.
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• Variable Universal Life
The third one on our list is the most complicated one, and just like the previous Indexed Universal Life insurance, you get guaranteed death benefits, but the premiums are not.
Much like the rest of the policies, the variable universal life insurance pays part of the premium to the cost of the insurance and its fees, and the remaining of the amount is invested in the cash value. However, your cash value account is tied to multiple sub-accounts which act similarly as mutual funds.
The great thing about this insurance is that there is no cap on how much interest you are credited annually, but there is also no floor attached meaning that if your sub-accounts are in the negative, you endure all the loses.
