Adjustable Life Insurance
| Adjustable Life Insurance |
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| See also |
Adjustable Life Insurance it is a contract between life insurance company and policy owner. This is whole life insurance plan. This policy offers to conform to the policy's face amount, premium, and length of protection. With Adjustable Life policy, this is not necessary to issue another policy or make a new application. Adjustable Life implement responsiveness to adjust any form of insurance (for example the whole life) without dropping, adding, or exchanging policies. Adjustable Life Insurance is based on money purchase concept [1]. Adjustable Life is a type of permanent life insurance.
Permanent life insurance
There are principles that determine permanent insurance [2]:
- Premium payments very often are the same each year.
- In the early years of the contract, premium payments are higher than for term life insurance.
- Premium payments might not be continued because of some circumstances.
- Tax of interests is deferred.
- Without long term commitment permanent life policies have no sense, because there is not a lot of cash surrender value accumulate in the early years of the contract.
Modifying Adjustable Life
There are three cornerstones of cash-value insurance[3]:
- premium
- the face amount of the policy
- rate of cash-value accumulation
With Adjustable life insurance it is possible to modifying discretionary component and In the other two corresponding changes occurred. These changes might be made without supplying new proof of insurability. For example: if you increase the face amount, the cash-value accumulation might slow and your premiums might increase in return, or some different combination might apply [4].
How insurance policy works
Barrel's metaphor below shows how cash-value life insurance works[5]
- Once in a while, the policyholder pays premium into the policy and then the level of water increases in the barrel.
- Every month the insurance company takes out its expenses and mortality charges and the water wanes.
- If in the barrel is enough water the policy lapse/terminal.
- Water which remains in the barrel is the accumulated value.
- If you subtract the surrender fees you receive a surrender value.
Footnotes
References
- AICPA (2018), Audit and Accounting Guide: Life and Health Insurance Entities 2018, John Wiley & Sons
- Bisys Educational Services (2004), Life and Health Insurance License Exam Cram: Life hlth insure lic exam, Pearson Education
- Garman E.T., Forgue R. (2014), Personal Finance, Cengage Learning
- Gayton S.J., Handler S.P. (2012), Guide to Personal Financial Planning for the Armed Forces, Stackpole Books
- Mishra K. (2010) Fundamentals Of Life Insurance: Theories And Applications, PHI Learning Pvt
- Steuer A. (2010), Questions and Answers on Life Insurance: The Life Insurance Toolbook, Greenleaf Book Group
Author: Magdalena Łubiarz
