What is Graded Benefit Whole Life Insurance?
Graded Benefit Whole Life insurance is a type of permanent life insurance policy where the full death benefit is not available to beneficiaries in the first couple years but will become fully available after a certain period of time has passed.
Typically, with a graded benefit whole life insurance policy, all premiums paid into the policy plus the interest they earn are paid out as a death benefit in the first two or three years. After the policy has been in force for those years, then the entire face value is available to pay out as the death benefit.
Who buys it?
If an insurance company considers someone a high risk due to health reasons or a “dangerous” lifestyle indicator like poor driving history, recent treatment for alcohol or drug abuse, a criminal record, or even a recent bankruptcy, then the company could refuse to insure the individual.
If this is the case then Graded Benefit Whole Life Insurance could be an option to get some coverage now since it reduces the insurance company’s risk in the first couple years.
These policies are not typically for large dollar amounts as a maximum death benefit amount is typically $150,000.
Who can Qualify for Graded Benefit Life Insurance?
Of course, it depends on the insurance company but an application for insurance usually accepted for a graded policy but generally someone would be accepted if there were no major medical diagnosis or treatment in the past three years.
This would include conditions like a heart attack, internal cancer, leukemia, respiratory disorder, diabetes diagnosed before age 40, stroke, COPD, Crohn’s disease, cerebral palsy, and MS.
In addition, the insured would need a health history free of dialysis, Alzheimer’s disease, ALS, AIDS, HIV, or current hospitalization. If there are any medical conditions, they would need to be well-controlled.
Guaranteed issue policies are graded benefit policies that don’t require anyone to answer medical question. These are usually capped off at $25,000 and are primarily used as final expense policies.
During the underwriting of life insurance, companies use different health (or risk) ratings to determine the price of the insurance. These ratings run from select-preferred to standard then to different risk tables. If someone is considered a high risk because of their job (or any other reason) they might be offered an additional percentage of premium in addition to the standard premium – adding to the cost.
However, some life insurance companies offer “shaving” programs that eliminate these extra premiums as an incentive to purchasing a permanent life insurance policy. The permanent policy may cost more than a term life insurance policy, but provides lifetime protection.
Decision Tree Financial has access to life insurance policies from virtually every life insurance company in the marketplace. If a policy exists to fit your needs, we will find it for you! Get In Touch Now