This policy is a more flexible version of whole life insurance. Once the policy is in force, it offers full coverage until the policyholder dies, no matter when that is. It also builds up a cash value which can be recovered if the policy is surrendered or taken as a loan. But, the insurance company formally divides the accumulating premiums into two accounts, separating the fund to generate the death benefits from the investment fund generating the cash value. This gives the policyholder the option to change the allocation of the premiums paid. So, if the intention is to maximize the death benefits, more money can be paid into that account. But if the investment component is seen as more important, more of the premium is diverted into that account. Some policies offer a guaranteed minimum rate of return on the money invested. The guarantee varies with the state of the economy and this aspect of the policy should be studied carefully before a purchase is made.
If the policyholder finds it difficult to maintain payment of the full instalments, some insurance companies offer the option of paying only the amount necessary to maintain the death benefits. Money can be diverted from the investment account for this purpose. This may be a temporary arrangement or permanent. However, this arrangement should be carefully monitored because, if the investment account runs dry and the policyholder fails to resume payment of the premium, the policy may lapse and terminate the life cover. The final advantage of this type of policy lies in the right to use some or all of the the lump sum held in the investment account to increase the amount of the death benefits payable to the family and relatives. This will usually be beneficial when the investments have performed well or when the need to use the cash value as a loan account has disappeared.
As always, those looking for these policies should always use the search engine on this site to shop around. Because of the higher levels of premium payable, it is particularly important to get multiple quotes from all the leading life insurance companies licensed to sell policies in your state. Once the companies with the best quotes are known, it is a good idea to discuss the detail of the policies with the insurance companies directly. This represents a significant investment step and the safest course of action may even be to take independent professional advice before buying a policy.