A person, known as the policyholder, takes out a life insurance policy and pays money known as the premium. In return, the insurance company agrees that upon the death of the policyholder, a payment will be made in the amount of the coverage to the person designated by the policyholder as the beneficiary. Traditional life insurance policies had the premium as a fixed amount. A flexible premium life insurance policy allows the premium to change throughout the life of the policy.

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History
 


Flexible life insurance policies are a relatively new idea. According to Lifeinsurance.net, they were introduced in the 1980s as "universal life insurance." The idea was to give the policyholder more flexibility and also to serve as a savings account--an investment--in addition to being a life insurance policy.

Premium

 

Flexible premium life insurance means exactly what it says. The policyholder decides how much, if any, to pay. There is a premium period, usually each month. The more money paid, the more money invested. A set amount goes toward the life insurance and the balance goes into an investment. As stated in Lifeinsurance.net, a minimum must be paid each year to keep the life insurance in force.

Function



Flexible premium life insurance is both a life insurance policy and savings account. SmartMoney.com points out that if a policyholder is too flexible in the early years of the policy by paying too little then the amount to keep the policy up will increase as the policyholder ages. The secret is pay more in the early years so the savings can carry the policy later.

Considerations



Flexible premium life insurance is not for people wanting solely life insurance coverage. It is not for people wanting to build up a steady value in a life insurance policy. It is for a person wanting a combination of life insurance and savings who has the resources to periodically pay more than the minimum premium so the savings portion can accumulate.

Potential 



Flexible premium life insurance policies have the potential to accumulate large sums of money for the policyholder. This allows the policyholder to keep the life insurance in effect without paying any more premiums. The policy also has the potential to go the other way if the savings function is not properly utilized. Pay early to reach full potential.

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