Explain Modified Graded Whole Life Insurance
- Whole life insurance is often seen as cost prohibitive. With higher initial premiums than term life insurance, whole life insurance is marketed to individuals with the financial means to pay the higher premium payments. However, graded whole life insurance offers a compromise to make premiums more affordable initially with the expectation that the individual's financial circumstances will improve over time.
- The death benefits you can purchase for a modified graded whole life contract are very similar to other types of whole life. Death benefits are set at the beginning of the contract. These death benefits will also cease and a claim will be paid in the same way that ordinary whole life contracts pay death benefits.
- Premium payments for modified graded whole life start out smaller than ordinary whole life. Premium payments more closely resemble term insurance premiums for the first 5 to 10 years. Beyond that, premiums rise to reflect the full cost of the policy. Actually, the premiums are the same as an ordinary whole life policy over the life of the policy, the the way in which you pay the premiums differs significantly.
- A common misconception is that the graded whole life is cheaper than ordinary whole life. In actuality, the total premium outlay is the same. Payments are not level, however, so the dollar amounts you pay are lower than a level premium whole life contract in the early years of the policy and higher than a level premium whole life in later years to make up the difference.
- Before buying a modified graded whole life policy, be sure that you understand what you're buying. Premium payments are guaranteed to rise after the initial low premium introductory period. Since whole life insurance is a long-term contract, you should budget your finance so that you can afford the higher premiums later on.