How Does Graded Death Benefit Whole Life Insurance Work?
A graded benefit whole life insurance policy will only pay out a portion of the death benefit for any natural cause of death during the first 2-3 years (2 years is most common). Some companies may describe these policies as having a “partial waiting period”.
Usually, death in the first 12 months will result in a payout of 30%- 40%. During months 13-24, the payout is usually 50%- 75%. After the graded period ends, the full death benefit is payable for any reason. Ultimately, the exact payout amounts during the graded period vary by company.
Keep in mind that if the policyholder dies due to an accidental death, the full death benefit will pay out even if it occurs during the graded period.
Insurers will typically limit the amount of graded coverage you can buy to $30,000 or less (varies by company). Given that it’s a form of whole life insurance, the coverage is permanent and will accrue cash value over time.
In general, graded whole life policies are geared toward people who have really high-risk health issues that render them unable to qualify for life insurance that pays out the full death benefit from day one. It’s valuable to have some coverage initially rather than none at all.
They are essentially one step up from a modified whole life policy that would make you wait 2-3 years before any death benefit can pay out.
Qualifying for a graded benefit policy
Like simplified issue whole life policies, qualifying for a graded whole life policy is simple and fast because no medical exam is required. You’ll only have to answer a handful of health questions, which, if you say yes to, likely won’t result in disqualification. In most cases, applications are approved on the spot or within a couple of business days.
Graded benefit policies are more expensive since they A) accept high-risk applicants, B) ask minimal health questions, and C) don’t require a medical exam. Ultimately, the insurer does not know the full scope of your health status, which inherently increases the risk and, consequently, the cost.
How Does Graded Premium Whole Life Insurance Work?
A graded premium whole life insurance policy has a lower initial premium that increases gradually over time at pre-defined intervals. It’s important to remember that a graded premium policy is not related to a graded benefit type of policy. These are two separate types of coverage.
In general, it’s extremely rare even to find a life insurance company that offers a graded premium whole life policy.
Sample Prices For Graded Death Benefit Whole Life Insurance
The cost of a graded whole life insurance is based on your gender, exact age, health, state of residence, tobacco usage (if any), and the death benefit amount. Below are some sample graded whole life rates for various ages and coverage amounts.
Is Graded Whole Life Insurance Right For You?
Truthfully, most people are not best served by a graded whole life policy. That’s because most individuals (even if they have pre-existing conditions) can indeed qualify for a policy that immediately covers them 100% for natural or accidental death.
That said, graded whole life insurance may be right for you if:
- You need no medical exam senior life insurance, and have high-risk medical issues.
- You’ve got some prior medical conditions that disable you from qualifying for immediate coverage, and you don’t want to endure a full two-year waiting period.
- Can’t afford a large policy but want to ensure there is enough to cover funeral costs.
- Want a quick application process and minimal health questions.
Frequently Asked Questions
Many final expense insurance policies have a graded death benefit, but not all of them. Truthfully, most final expense insurers offer either immediate coverage or a full waiting period. Very few of them have a graded benefit option.
Guaranteed acceptance life insurance policies have no health questions, nor is there a medical exam. They all have a full two-year waiting period, whereby the insurer will only refund your premiums. There are no guaranteed acceptance policies that will pay out a portion of the death benefit in the first 2-3 years.
Some insurance companies use the phrase “graded benefit” to describe a policy that only refunds premiums during the first two years (aka a waiting period). However, nearly all companies that offer a graded benefit policy use that description to denote a policy that provides partial coverage during the first two years.
Graded whole life plans, just like immediate benefit policies, are subject to the incontestability clause. This clause is present in all life insurance policies that offer any coverage for natural causes of death during the first 2-3 years. If you die during the incontestability period (2-3 years), the insurer will order your medical records to ensure you correctly answered the health questions. After they confirm your answers were honest, then they will pay out the death benefit (not beforehand). However, if your medical records show that you incorrectly answered a health question, the insurer will rescind your policy, not pay out the death benefit, and will simply refund your premiums.
- Nationally licensed life insurance agent with over 15 years of experience
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Anthony Martin is a nationally licensed insurance expert with over 15 years of experience and has personally served over 10,000 clients with their life insurance needs. He frequently authors entrepreneurial and life insurance content for Forbes, Inc.com, Newsweek, Kiplinger, and Entreprenuer.com. Anthony has been consulted as an expert life insurance source for dozens of high-profile websites such as Forbes, Bankrate, Reuters, Fox Business, CNBC, Investopedia, Insurance.com, Yahoo Finance, and many more.
- Nationally licensed life insurance agent with over 19 years of experience
- Best selling Amazon author.
Jeff Root is a nationally licensed life insurance expert with over 19 years of experience. He has personally helped over 3000 clients with their life insurance needs. Jeff is a best-selling Amazon author and the managing partner of a highly successful insurance brokerage that manages over 2,500 licensed insurance agents across the USA. He has been a featured life insurance source for prestigious websites such as Forbes, Bloomberg, MarketWatch, Nerdwallet, and many more.
- Nationally licensed life insurance agent with over 14 years of experience
- Best selling Amazon author of five insurance sales books.
David Duford is a nationally licensed insurance expert with over 14 years of experience. He has personally helped more than 15,000 clients buy life insurance. David has been featured as an expert source for highly authoritative publications such as A.M. Best and Insurancenewsnet. He also runs one of the largest Youtube channels to help aspiring insurance agents serve their clients better.
- Nationally licensed life insurance agent with over 19 years of experience
- Best selling Amazon author.
Jeff Root is a nationally licensed life insurance expert with over 19 years of experience. He has personally helped over 3000 clients with their life insurance needs. Jeff is a best-selling Amazon author and the managing partner of a highly successful insurance brokerage that manages over 2,500 licensed insurance agents across the USA. He has been a featured life insurance source for prestigious websites such as Forbes, Bloomberg, MarketWatch, Nerdwallet, and many more.
- Nationally licensed life insurance agent with over 14 years of experience
- Best selling Amazon author of five insurance sales books.
David Duford is a nationally licensed insurance expert with over 14 years of experience. He has personally helped more than 15,000 clients buy life insurance. David has been featured as an expert source for highly authoritative publications such as A.M. Best and Insurancenewsnet. He also runs one of the largest Youtube channels to help aspiring insurance agents serve their clients better.
