When Martin and Peter Klein, along with Jeffrey Gilbert, bought a restorable house last year in the Adams Morgan section, they wanted to take out life insurance policies an each other with face values equal to their separate investments. Yet property values were rising so fast in the neighborhood it was clear their initial coverage would be insufficient in a few months. How could they get adequate protection without the expense of buying new policies frequently?

When Norman "Skip" Shorb, 32, of Rockville, and his brother Ronald, 29, expanded their retail nursery business and went into wholesale garden supplies, they did it as equal partners.

That also meant insuring each other's lives for the same amount. Because of the differences in their ages, one of the partners would be obliged to pay more in premiums. How could this be avoided.

When Sylvester Robinson, a third-year dental student at Howard University, decided the time had come to buy his first life insurance policy, he could afford only a small premium. Because he wanted the policy as much for investments as for coverage, he needed to build up the cash value as quickly as possible. How could this best be accomplished?

The answer in all of the above cases turned out to be adjustable life. As the name implies, this form of insurance allows the policyholder to "adjust" traditional whole and term insurance to his particular needs. (Whole life, while covering the insured person indefinitely, also functions as a savings plan by building up cash value. Term life, which is less expensive, provides coverage for a fixed period and does not ordinarily build up a cash value.) Generally speaking, the contract for conventioninsurance cannot be changed without terminating the policy unless the holder has purchased a guaranteed insurability rider.

In simplest terms, adjustable life allows the policyholder to switch from term to whole or vice versa, to increase or decrease the face amount, the premiums or the length of coverage periodically or as needed to meet life's vicissitudes like the birth of a child or the loss of a job. This spares the insured the additional expenses incurred with each new policy taken out. (The average policyholder winds up owning six different policies in a lifetime, according to Forbes magazine.)

Only two companies in the United States now offer adjustable life insurance, but a number of others are working to develop programs. The concept was invented by Minnesota Mutual of St. Paul in 1971, although policies were not sold nationwide until 1974. Today 45 percent of the individual policies Minnesota Mutual sealls are adjustables, and 23 percent of its premiums come from this source. Minnesota recently was authorized to write adjustables in Maryland; it also writes them in Virginia and the District.

Adjustable life now accounts for one-third of the total face amount of all new policies for Bankers Life of Des Moines, which entered the field 18 months ago. In 1977 it wrote 16,900 adjustables with a face value of $500 million. Senior Vice President John Elken was asked how much of that represented new business taken away from competitors who do not offer adjustables. He replied the evidence so far suggests most of it represents substitutions for traditionsl insurance sold by the company. Bankers Life is mounting a publicity campaign to get clients and agents to demand its new product. The company writes adjustables in Maryland and the District.

Elken was also why other companies have been so slow to get into adjustable life if it represents the wave of the future. (Northwestern Mutual of Milwaukee plans to offer adjustable sometime after 1980, while Metropolitan Life of New England Life report their adjustable life programs are still in study or development stages.)

H likened adjustable to invention of the automatic transmission. "Everybody knew the goal was to eliminate necessity of shifting gears, but it took a long time tjo perfect the process." He might have added that some people always have preferred the stick shift, while others have gone back to it. Because agents receive the same or slightly less commission - on average 55 percent on whole versus 50 percent on adjustable - for selling something more complicated, veteran insurance sellers are often reluctant to promote adjustable.

Sdjustable life insurance came into being as a product of technological and social change. Bankers Life calculated its computer could be programmed to handle 10,000 policies, all different, plus changes and updates in the same amount of time it took to handle 20,000 conventional policies. Nevertheless it required two and a half years work, or 25 man-years, to develop the software, a very expensive gestation.

Even more than alternative mortgage forms - which feature progressive or variable payments - adjustable life insurance responds especially to the needs of young buyers. By starting off with term, the policyholder can raise coverage when buying a house, for example, but keep premiums low by decreasing the length of the coverage.

Adjustable has an automatic cost-of-living option that allows a 20 percent increase in the face value every three years without the necessity of a medical examination. Four out of five policyholders exercise the option. (However, if the policyholder does not accept each increase in the early years, the option will be canceled, and a policyholder would have to submit to a physical. This is to prevent a seriously ill person from suddenly raising the face value.)

Yet it's not necessary to wait three years. The Kleins and Gilbert, who bought the house in Adams-Morgan, took out face value of $100,000 when the building was only three-quarters renovated. It will be completed next month and they expect the appraisal to jump to $150,000. So they will raise their insurance coverage then.

In the case of the Shorbs, their age difference was discounted by changing the term. Both partners pay $600 a year for $100,000 coverage, but one policy lasts 10 years and the other 15. This adjustment, which would be impossible under conventional life insurance, is one of the features of adjustable that makes it so appealing to business partnerships, especially when there is a wide age difference. Bankers Life agent Donald Lawson explained, "It's psychologically nice to be paying the same for insurance when you put the same amount of capital into the business."

Adjustable is also useful when a business faces a reversal or a cash flow crisis; premuims can be reduced by decreasing the term or coverage temporarily. Another feature of adjustable offered by Bankers Life is reinstatement of a lapsed policy without payment of interest on back premiums or the need to pay all of the lapsed premium; a resumption at a lower level the customer can afford is all that is required.

Robinson, the dental student, bought adjustable at the suggestion of his agent, Tyrone Hart of the Murray W. Kronick Agency, because adjustable builds up cash value quicker than conventional insurance. Its first-year value is zero, but adjustable begins to develop cash value by the end of the second year, even in the low-premium versions that are technically term.

Robinson bought a Bankers Life $10,000 policy, but adjustable usually appeals to persons buying more coverage. A chart worked out by Minnesota Mutual actuary Jerry McAllister shows the advantage of adjustable starting with $50,000 coverage. After five years, the cash value of an adjustable policy is $936; a conventional policy, $400.

To get the same coverage afforded by one adjustable policy, an individual would need six different term and whole life policies. Minnisota Mutual's hypothetical case starts with $50,000 term insurance at age 25 and switches to whole life at age 45, increasing coverage to $100,000. Whereas initial premiums are higher for adjustable ($475 annually) than for term ($426) although lower than whole life ($600), adjustable works out to about four percent lwss per annum than conventional over 40 years, McAllister calculated.

More startling is the difference in cash value at age 65. The adjustable policyholder would have paid $41,846 in premiums and have a value of $45,486, for a net gain of $3,640. The individual who bought six policies to get the same coverage would have paid in a net of $52,842 and accrued only $49,023, a net loss of $3,820.

Adjustable life insurance is more expensive than either whole life or term insurance by itself because the insured is paying for the privilege of being flexible. Bankers Life and Minnesota Mutual agree that for the individual who know that he or she will require only whole or only term insurance, it is not worth paying more for adjustable. But their assertion already is being challenged by Northwestern Mutual. "We may be naive," said actuary Dale R. Gustafson, "but we believe we should be able to put together something cheaper; we don't intend to charge the consumer for flexibility."