Principal, LifeNet Insurance Solutions, Redmond, WA
Graded death benefit life insurance occupies the space between so-called "normal policies" and "guaranteed issue life" insurance, where anyone can get coverage without any medical questions or questions about lifestyle, travel, etc.
Usually, a graded benefit policy will be an "accident only" policy for 2 years and then a part or all the death benefit would be paid depending upon the carrier.
Graded Benefit Whole Life Insurance is whole life insurance that pays a reduced benefit during the first one to three years, then pays the full death benefit after that.
E.g. If death occurred during year one or two, it may pay back all you paid in, plus 10%. If death occurred during year three or afterwards, it would pay the beneficiary the whole death benefit. Different policies are graded a different number of years, and each carrier has their own criteria for how much is paid back during the graded years.
Most graded benefit whole life policies are only graded for natural death. I.e. death due to illness or old age. They usually pay 100% of the death benefit from day one for accidental death.
Guaranteed issue whole life policies are graded, and some simplified issue policies are graded. Simplified issue policies are those that do not require an exam.
The biggest thing to watch out for with graded whole life insurance is whether the premium stays level for life. Some graded whole life policies have premiums that go up at regular intervals. With some, the company may raise the premiums at any time, as long as they do so for everyone owning that type of policy. If you anticipate living longer than a few years, it is best to buy a graded benefit whole life policy where the premium will stay level for the rest of your life.
Please feel free to contact me at any time if you would like to see whether you qualify for an immediate benefit policy, or to get some competitive quotes for several graded benefit policies that have the price locked in for life.
Co-Founder, TermInsuranceBrokers.com, Goldenzweig Financial Group, Las Vegas, Nevada
Graded death benefit whole life insurance is permanent coverage that features an alternative structure in the first 2 or 3 years of the policy (depending on the insurance company). The program will feature one of two graded benefit methods.
1) Return of premium - if death occurs during the graded period, any premiums paid into the policy is given to the beneficiary. If death occurs under accidental means, then the full benefit is still payable. After the graded period has expired, the full benefit is payable regardless of whether death occurs due to illness or injury. Some carriers may offer interest on your premiums if the insured passes away during the graded period - be sure to review your policy to see if it's under your policy. The return of premium structure is more commonly seen under graded benefit whole life policies.
2) Reduced death benefit - if death occurs during the graded period, the coverage will payout a specific percentage of the death benefit, depending on which year during the graded period death occurs. For example, if death occurs during the first year of the policy, the carrier only pays 30% or 35% of the death benefit (depending on the carrier) - 70% or 75% if death occurs during year 2. If death occurs under accidental means during the graded period, then the full benefit is payable. After the graded period has expired, the full benefit is payable regardless of whether death occurs by illness or injury.
Under final expense policies (another name for small whole life policies with face amounts of $25,000 or less), the responses to the health questions determine whether you will qualify for a level benefit (immediate full coverage) or a graded benefit.
Typically, to qualify for a level benefit, all the health questions have to be answered no. Please note, just because you may not be able to answer all health questions no for one carrier's program, doesn't mean you wouldn't be able to answer no to all questions for a different carrier. Each insurance company has their own questions that they ask so one carrier may be able to consider a level benefit where another may not. The wording to the questions is critical to pay attention to.
If you can't qualify for traditional final expense coverage, you always have the option for GUARANTEED ISSUE whole life. These programs do not ask any health questions whatsoever. They will feature the return of premium graded period.
When buying any whole life insurance policy, be sure to remember 2 things:
1) Do the premiums remain the same for the entire life of the policy? - Some policies feature banded premium - meaning they go up every 5 years. They may be cheaper up front during the first couple years, but can cost significantly more over the long run.
2) What age does the coverage carry you to? - Some policies will only carry you to age 80 or to age 90 - and if you live beyond that age, your policy automatically terminates. It's best to set yourself up with something that guarantees the coverage will remain in place for life (as long as you continue to pay your premiums of course).
I always suggest consulting with an independent agent who can shop the case for you and compare multiple insurance policies with your medical history to make sure you're getting the desired coverage at the lowest possible cost. There is no cost to doing so.
If you'd like some help gathering the most accurate quotes and securing the coverage at the lowest cost, please send me an e-mail via the contact me button next to my name with your name and contact information to reach you at.
I hope the information is helpful - thanks very much.
That is a great question! If you are looking at whole life insurance policies, you want to look at whether the policy is an "immediate issue" policy, or one that is a "graded (or "modified")" policy. An immediate issue policy is one that goes into effect as soon as the underwriting is approved, the policy is issued, and the first payment received (in some States the policy may be honored if the company issued the policy, and the payment had not yet been received). These policies are most often written for people with great health, or people with minor health issues, as determined by that company's underwriters. (A good independent agent can help you find the best fit.)
A graded or modified policy will be issued to folks that have more significant health issues, or by companies that are mass marketing the policy - like AARP or Mutual of Omaha's "guaranteed everyone qualifies" policies that you see on TV or that arrive in your mailbox. These policies will all have a period of time where the desired face value (and typically it is very small - often not more than $10,000) is not paid out unless the insured dies an accidental death (as strictly defined by the insurer). Typically any health related passing will result in a payment only of the amount you've paid into the policy, and some amount of interest. This period is generally 2-3 years. (Again, an independent agent can help sort through companies to help you find the best grade for you.)
So an "everyone is guaranteed" policy like AARP offers will somewhere in the small print tell you that the policy has a graded or modified benefit period of ___ years and during that period a death resulting from natural causes will result in the return of premiums paid plus __% interest. This is done to help limit their cost over the entirety of the risk classes they will be insuring.
The other companies that offer this type of policy are doing it based upon your specific health issues, and the increased risk to your mortality. For example, someone who has no diabetes, or that has controlled their disease with a regimen like Metformin will usually be a certain immediate issue candidate. Someone whose diabetes went unchecked for a while, and is on an insulin program will more often than not be issued a graded/modified policy. If that unchecked diabetes has led to complications like amputations, diabetic coma, or neuropathy, you can usually expect the more expensive guaranteed issue policy to be your only option. Again, a good agent can help you find the best fit for you.
You can expect to pay less for the immediate issue policy, more for the graded policy, and most for the guaranteed issue policy.
I hope that answers all of your questions, and if not, please don't hesitate to reach out and contact me, I'd be more than happy to spend some time answering whatever questions or concerns that you may have. Thank you for asking!
Insurance Advisor, Lordship Insurance Services, California
This allows you to get benefits when you otherwise would not be able to. If you pass away within a 2 year period you will get a refund of your premiums paid plus interest. If you pass away after 2 years then you get the face amount. Typically graded policies are underwritten differently than graded ones.
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Usually, a graded benefit policy will be an "accident only" policy for 2 years and then a part or all the death benefit would be paid depending upon the carrier.
E.g. If death occurred during year one or two, it may pay back all you paid in, plus 10%. If death occurred during year three or afterwards, it would pay the beneficiary the whole death benefit. Different policies are graded a different number of years, and each carrier has their own criteria for how much is paid back during the graded years.
Most graded benefit whole life policies are only graded for natural death. I.e. death due to illness or old age. They usually pay 100% of the death benefit from day one for accidental death.
Guaranteed issue whole life policies are graded, and some simplified issue policies are graded. Simplified issue policies are those that do not require an exam.
The biggest thing to watch out for with graded whole life insurance is whether the premium stays level for life. Some graded whole life policies have premiums that go up at regular intervals. With some, the company may raise the premiums at any time, as long as they do so for everyone owning that type of policy. If you anticipate living longer than a few years, it is best to buy a graded benefit whole life policy where the premium will stay level for the rest of your life.
Please feel free to contact me at any time if you would like to see whether you qualify for an immediate benefit policy, or to get some competitive quotes for several graded benefit policies that have the price locked in for life.
1) Return of premium - if death occurs during the graded period, any premiums paid into the policy is given to the beneficiary. If death occurs under accidental means, then the full benefit is still payable. After the graded period has expired, the full benefit is payable regardless of whether death occurs due to illness or injury. Some carriers may offer interest on your premiums if the insured passes away during the graded period - be sure to review your policy to see if it's under your policy. The return of premium structure is more commonly seen under graded benefit whole life policies.
2) Reduced death benefit - if death occurs during the graded period, the coverage will payout a specific percentage of the death benefit, depending on which year during the graded period death occurs. For example, if death occurs during the first year of the policy, the carrier only pays 30% or 35% of the death benefit (depending on the carrier) - 70% or 75% if death occurs during year 2. If death occurs under accidental means during the graded period, then the full benefit is payable. After the graded period has expired, the full benefit is payable regardless of whether death occurs by illness or injury.
Under final expense policies (another name for small whole life policies with face amounts of $25,000 or less), the responses to the health questions determine whether you will qualify for a level benefit (immediate full coverage) or a graded benefit.
Typically, to qualify for a level benefit, all the health questions have to be answered no. Please note, just because you may not be able to answer all health questions no for one carrier's program, doesn't mean you wouldn't be able to answer no to all questions for a different carrier. Each insurance company has their own questions that they ask so one carrier may be able to consider a level benefit where another may not. The wording to the questions is critical to pay attention to.
If you can't qualify for traditional final expense coverage, you always have the option for GUARANTEED ISSUE whole life. These programs do not ask any health questions whatsoever. They will feature the return of premium graded period.
When buying any whole life insurance policy, be sure to remember 2 things:
1) Do the premiums remain the same for the entire life of the policy? - Some policies feature banded premium - meaning they go up every 5 years. They may be cheaper up front during the first couple years, but can cost significantly more over the long run.
2) What age does the coverage carry you to? - Some policies will only carry you to age 80 or to age 90 - and if you live beyond that age, your policy automatically terminates. It's best to set yourself up with something that guarantees the coverage will remain in place for life (as long as you continue to pay your premiums of course).
I always suggest consulting with an independent agent who can shop the case for you and compare multiple insurance policies with your medical history to make sure you're getting the desired coverage at the lowest possible cost. There is no cost to doing so.
If you'd like some help gathering the most accurate quotes and securing the coverage at the lowest cost, please send me an e-mail via the contact me button next to my name with your name and contact information to reach you at.
I hope the information is helpful - thanks very much.
A graded or modified policy will be issued to folks that have more significant health issues, or by companies that are mass marketing the policy - like AARP or Mutual of Omaha's "guaranteed everyone qualifies" policies that you see on TV or that arrive in your mailbox. These policies will all have a period of time where the desired face value (and typically it is very small - often not more than $10,000) is not paid out unless the insured dies an accidental death (as strictly defined by the insurer). Typically any health related passing will result in a payment only of the amount you've paid into the policy, and some amount of interest. This period is generally 2-3 years. (Again, an independent agent can help sort through companies to help you find the best grade for you.)
So an "everyone is guaranteed" policy like AARP offers will somewhere in the small print tell you that the policy has a graded or modified benefit period of ___ years and during that period a death resulting from natural causes will result in the return of premiums paid plus __% interest. This is done to help limit their cost over the entirety of the risk classes they will be insuring.
The other companies that offer this type of policy are doing it based upon your specific health issues, and the increased risk to your mortality. For example, someone who has no diabetes, or that has controlled their disease with a regimen like Metformin will usually be a certain immediate issue candidate. Someone whose diabetes went unchecked for a while, and is on an insulin program will more often than not be issued a graded/modified policy. If that unchecked diabetes has led to complications like amputations, diabetic coma, or neuropathy, you can usually expect the more expensive guaranteed issue policy to be your only option. Again, a good agent can help you find the best fit for you.
You can expect to pay less for the immediate issue policy, more for the graded policy, and most for the guaranteed issue policy.
I hope that answers all of your questions, and if not, please don't hesitate to reach out and contact me, I'd be more than happy to spend some time answering whatever questions or concerns that you may have. Thank you for asking!