What Is Graded Benefit Whole Life Insurance?

by Tim Plaehn

Graded benefit whole life insurance is a type of life insurance coverage that may make sense for an older person looking for a limited amount of easy-to-qualify-for life insurance. Permanent -- not term -- life insurance can be obtained without the requirement of a medical exam. Graded benefit insurance can fill a need for several uses of life insurance coverage.

Stepped Up Coverage

Graded benefit life insurance coverage gets it name from the fact that the full policy amount will not be paid if the insured dies in the first couple of years after the policy is issued. If the death occurs before the graded benefit period has passed the typical benefit is a return of all of the premiums paid to date plus a small amount of interest on the premiums. Another way the death benefit may be graded is a payment of 25 percent of the policy amount if the insured dies in the first year, 50 percent if the death is in the second year and 100 percent payout if the insured dies in year three or later. For the beneficiaries to receive the full death benefits stated in the policy, the insured must live past the graded benefit period. Some policies may pay the full amount if the insured dies from an accident within two years of the policy being issued.

No Medical Exam

An important feature of graded benefit life insurance is that someone in poor health will be able to obtain life insurance coverage. This type of insurance requires no medical exam. The lower benefit for the first couple of years covers the risks taken by the insurance company offering the plan. Graded benefit life insurance is intended for individuals who probably cannot qualify for insurance that requires a clean bill of health. The premium rates for graded benefit life are also higher than with medically underwritten insurance.

Age Limits

Life insurance companies offer graded benefit whole life to older individuals. Coverage is typically available for applicants from ages 50 to 75. The older someone is when they apply for the insurance, the higher the cost for the same coverage or the insurance company will provide a lower death benefit at a set premium rate. After an individual has purchased a graded benefit whole life policy, the coverage is for life, the premiums will not increase and the amount of life insurance will not be reduced.

Potential Uses and Considerations

Graded benefit whole life is often purchased by older individuals to provide money for final expenses or funeral costs. Another reason is to leave a modest inheritance or endowment to a loved one or favorite charity. The amount of life insurance coverage available with this type of insurance is limited, but the amounts available can be very appreciated or needed. Graded benefit life insurance is heavily marketed to senior citizens. Do not pick an insurance policy just because it is advertised on television. Check the rates and coverage from several different life insurance companies.

About the Author

Tim Plaehn has been writing financial, investment and trading articles and blogs since 2007. His work has appeared online at Seeking Alpha, Marketwatch.com and various other websites. Plaehn has a bachelor's degree in mathematics from the U.S. Air Force Academy.

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