UPDATED: Mar 13, 2020
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An adjustable-rate policy is a financial product where the price fluctuates over time.
There are adjustable rate mortgages, for example, where the mortgage rate varies based on current interest rates.
There are also adjustable rate life policies, also known as adjustable life insurance policies or flexible premium adjustable life insurance policies. These policies let you increase the amount or frequency of premiums (to add to a cash value) or reduce the rate or frequency of premiums, or even eliminate them altogether, by covering them with cash value.
Typically, adjustable premium or adjustable-rate insurance policies are for life insurance, although it could also be for car insurance.
Things like higher than expected maintenance costs on the policy could cause rates to increase, for example. Or, increased investment returns from the insurance company could reduce rates.
Adjustable premium policies may be a good option for consumers looking for flexibility in their monthly payments while sacrificing some predictability. It could also be the right option for policyholders who expect their lifestyle situation to change over time and want their payments to change with it.
The opposite of an adjustable premium insurance policy is a fixed premium insurance policy. Under a fixed premium insurance policy, you have the same, predictable premiums until your plan is renewed or adjusted. The vast majority of insurance policies (including car and life insurance policies) are fixed premium insurance plans.
Benefits of an Adjustable Rate Insurance Policy
Some insurance companies offer adjustable-rate life insurance policies. These policies might be ideal for those who want some flexibility.
Let’s say you’re young, healthy, and have a young family at home. You just bought a new house, and money is a little tighter than it used to be. You reduce your life insurance premiums to increase your current cash flow. Your life insurance payout is slightly less, but you save some money today.
Later in life, you can increase your premiums and increase your potential life insurance payout.
How Do Adjustable Rate Insurance Policies Pay Out?
Adjustable-rate life insurance policies have vastly different benefits from policy to policy.
Typically, an adjustable-rate life insurance policy will pay out in the event of the death of the covered individual. The beneficiaries may receive payment in a lump sum or annuity depending on the coverage chosen.
Some adjustable rate life insurance policies pay a cash value accumulation at the end of the policy because they invest part of the premium paid each month, then return this investment (minus charges) when the policy expires. Sometimes, this type of policy can also pay out as an unlimited annuity – like how pensions work, where the beneficiary receives monthly or weekly payments for life.
Is Adjustable Rate Car Insurance Available?
Adjustable-rate car insurance isn’t offered by any major insurance companies.
Most car insurance policies are adjusted on an annual or semi-annual basis anyway. The insurance company might periodically check your driving record for any infractions, speeding tickets, or other incidents, then adjust your rates accordingly.
Car insurance companies will also automatically adjust your car insurance premiums lower for every year without an accident on your record. If you have gone a full year without making a claim, for example, then your insurer might adjust your car insurance payments lower.
No major company technically offers “adjustable-rate car insurance,” although car insurance premiums usually have some flexibility year-to-year.