Final answer:
The policy owner of adjustable life insurance has the ability to adjust their policy's death benefit and premiums, and can borrow against the cash value of the policy. The insurance company balances premiums with perceived risks and claims to ensure financial stability and profitability.
Step-by-step explanation:
Typically, the policy owner of adjustable life insurance has the flexibility to adjust the policy's death benefit and premiums. Adjustable life insurance, also referred to as cash-value or whole life insurance, includes a death benefit and accumulates a cash value over time. This cash value can act as a savings account that the policyholder can borrow against, or it can be received as a lump sum under certain circumstances. Policyholders often have knowledge of their own or their family's health history, which can influence their perceived risk groups. Additionally, a life insurance company is in the business of providing financial protection, and once policies pay out, the company often has significant cash reserves, which it can lend or allow policyholders to borrow against.
Yet, the insurance business model operates on the principle that the average person's contributions must sufficiently cover their potential claims, the operating expenses of the company, and allow for profits. This means that premiums and benefits must be balanced with the projected risks and actual claims that arise within different risk groups, defined by factors such as genetics, personal habits, or geographic location.