Most Adjustable Life Insurance Contain a Right to Increase Coverage
The companies that offer AL policies realize that the flexibility to increase the face amount is not that significant if increases require evidence of insurability. Consequently, most companies offering AL policies issue them with guaranteed purchase or insurability riders. This provision allows the policyowner to periodically purchase (e.g., every three to five years) a limited […]
Will a Change in the Plan of an Adjustable Life Insurance Policy Cause it to Become a Modified Endowment Contract (MEC)?
Generally, a change in the plan of insurance that either lengthens the period of coverage or increases the face amount of coverage is treated as a material change in the policy that triggers a new seven-pay test. However, the reconfigured policy is treated as a MEC only if it fails the seven-pay test in its […]
Can Adjustable Life Policyowners Make Unscheduled Additional Premium Payments Similar to Those Permitted for Universal Life?
Most AL policies permit unscheduled additional premium payments. Such payments will lengthen the term of coverage or shorten the premium paying period depending on whether the current plan of insurance is in a term mode or a whole life mode. For example, a large enough payment might change a plan from term to age fifty […]
Dividend Options Found in Adjustable Life Insurance Policies
Adjustable Life (AL) policies offer the conventional dividend options—cash, premium reduction, accumulate at interest, and paid-up additions. Some AL policies offer what is called a policy improvement dividend option. With this option, dividends become a part of the cash value and thereafter lose their separate identity. If the current plan of insurance is equivalent to […]
How the Adjustment Provisions of Adjustable Life Differ from the Change Provisions Found in Ordinary Whole Life Insurance Policies
Adjustments in adjustable life (AL) policies are made prospectively only, affecting the future but in no way amending the past. The change provisions in traditional policies typically require payment of back premiums and/or other retroactive adjustments that may affect cash values. Such changes typically become increasingly and prohibitively expensive the longer the policy has been […]
Evaluation Tips for Considering an Adjustable Life Insurance
Although policyowners may change the plan of insurance, AL is essentially a traditional fixed premium, fixed benefit policy at any given point in time. Some of the key considerations are: the policy loan provisions; the policy loan interest rate; whether or not the company uses a direct recognition method to determine the dividend paid on […]
Fees and Costs of Acquiring an Adjustable Life Insurance Policy
Life insurance companies are free to set their premiums according to their own marketing strategies. Almost all states have statutes prohibiting any form of rebating (sharing the commission with the purchaser) by the agent. The premium includes a loading to cover such things as commissions to agents, premium taxes payable to the state government, operating […]
When to Use Universal Life Insurance as an Alternative to Adjustable Life Insurance
Universal life is the principal alternative to adjustable life (AL). When the insurance industry introduced AL, the industry promoted it as the perfect policy for virtually everyone. It could be adjusted to meet anyone’s changing insurance needs throughout life. However, with the introduction of universal life, the popularity of adjustable life has waned for several […]
Tax Implications of Owning Adjustable Life Insurance
The tax rules for AL policies are generally the same as the tax rules for other types of life insurance policies. Death benefit payments are usually free of any federal income tax. AL policies also are subject to the same estate, gift, and generation-skipping transfer taxation rules as all other types of life insurance policies. […]
5 Disadvantages of Adjustable Life Insurance
Knowing the advantages of any given policy is a vital step in making the right decision. However, disadvantages should also be addressed to help make the most educated decision. Below are 5 common disadvantages to an adjustable life (AL) insurance policy: Some AL policies, similar to many ordinary whole-life policies, use what is called the […]