Advantages & Disadvantages of Adjustable Comp Life Plans

Life insurance policies are meant to help family and friends through the hardship of a loved one's passing, but here in the land of the living, they're a veritable minefield of jargon. You can only read so much about limitations on access to your values and periodic changes to portfolio operating expense before your head starts to spin.

Because Northwestern Mutual Life Insurance Company's Adjustable CompLife policy hybridizes permanent and term insurance, it can be a little slippery to grasp at first. Once you clearly break down exactly what the Adjustable CompLife plan entails, it becomes much easier to dive into its potential pros and cons.

TL;DR (Too Long; Didn't Read)

Advantages of these policies include cash value accumulation, flexibility and the ability to have an income stream. Disadvantages include investment risk and the possibility of premium increases.

Basics of Adjustable CompLife Plans

Combination policies like Northwestern Mutual's Adjustable CompLife plan focus squarely on flexibility. To that end, Adjustable CompLife includes permanent term insurance with optional term insurance, the latter of which offers additional coverage beyond basic life insurance for additional costs, should you choose to opt in to the perks. The plan offers lump sum payment upon the policyholder's passing.

Northwestern Mutual wealth management adviser Scott E. Ashline speaks more to the policy's flexibility, noting that it "offers lifelong protection and the ability to build cash value, plus the ability to secure high levels of more affordable, temporary protection." Likewise, Adjustable CompLife offers the option to surrender your policy for its cash value at any time and allows you to borrow up to 90 percent of its cash value as security. Usually, you won't be taxed on your policy's investment gains until you make a withdrawal.

Pros of Adjustable CompLife Plans

Adjustable CompLife provides death protection as a means to ensure that the lump sum it pays remains consistent. CompLife includes cash value accumulation. With death protection in place, the cash value is adjusted on the fly. For instance, if you have a $150,000 policy and $30,000 in accumulated cash value, your death benefit is $120,000; when that cash value increases to $40,000, your death protection decreases to $80,000 so that the total face value paid to beneficiaries remains the same.

As a permanent term life insurance policy, you can also use Adjustable CompLife as an income stream during retirement or to fund your choice of long-term financial goals. Ashline recommends the plan as an option for funding the college education of a child or grandchild.

Cons of Adjustable CompLife Plans

With a portfolio-based CompLife plan, underlying values are invested in Northwestern Mutual's general account. Those dividends replace term insurance with paid-up traditional insurance, but Northwestern Mutual notes that they are not guaranteed. Similarly, when you participate in an investment experience, you take on 100 percent of the investment risk.

While Adjustable CompLife is all about death benefit flexibility and even allows policyholders to custom design certain aspects, one flexible factor is a lot less exciting: Coverage for life is subject to premium increases. Of course, your policy will lapse if you don't pay a sufficient premium.

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