Graded life insurance policies are a way for life insurance companies to be able to offer coverage to persons who would be uninsurable otherwise. But restricting the payment of the death benefit for the first 1-3 years for death due to natural causes, graded policies help life insurance companies stay viable so they can be counted on to pay the death benefit for all their clients.
Graded policies generally pay 100% of the death benefit from day one for accidental death. For death due to illness, some pay only what you paid in plus a small % more during the first 3 years. Others pay a % of the death benefit and may only have a two year grade.
Owner/Insurance Broker, KM Health Insurance Services, Hazel Crest, Illinois
Great question. These are the questions that should be asked before signing up for a policy. A graded policy normally will not pay out full benefits within a certain amount of time (such as 2 years) if death occurs from natural causes. So if a person were to have a graded policy and dies within the 1st year, more than likely the beneficiary will get just the premiums that were paid in that year plus maybe another 10% or so as an example.
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Graded policies generally pay 100% of the death benefit from day one for accidental death. For death due to illness, some pay only what you paid in plus a small % more during the first 3 years. Others pay a % of the death benefit and may only have a two year grade.