MODIFIED AND GRADED PREMIUM WHOLE LIFE INSURANCE
Lower Premiums in Early Years with Higher Premiums Later
What is Modified Premium and Graded Premium Whole Life Insurance?
Modified Premium Whole Life Insurance
Modified Premium Whole Life Policies are permanent life insurance contracts with level death benefits where the initial premiums that are much lower than regular straight whole life insurance during the first few years of the contract (usually five.) As a matter of fact, during the initial period, premiums for modified whole life are only slightly higher than a term life insurance policy.
However, after these first few years of lower premiums, a modified whole life contract requires higher premiums when compared to straight whole life as the policy owner has to “make up” those years to fund the contract correctly.
Graded premium whole life insurance
Graded premium whole life insurance is similar to modified whole life insurance in that premiums are in the first few years when compared to straight whole life insurance. However, instead of the premium “jumping up” all at once, a graded premium whole life contract “steps up” periodically so that they are higher than those of a straight whole life insurance policy.
Who Buys Modified or Graded Premium Whole Life Insurance
Because of their lower premium requirements in the early years of the policy, modified and graded premium contracts are a solution for individuals who want the lifetime death benefit protection and contractual guarantees a whole life insurance contract provides but have limited financial resources available today with the expectation that their financial situation will change in the future.
These features along with some options, such as the ability to add additional life insurance coverage without underwriting and disability waiver of premium, make graded and limited pay life insurance options a good fit for someone just starting out in their career or own a growing business.
These features make these contracts popular as a funding vehicle for BUY-SELL Agreements and Executive Compensation Programs.
Options Other Than Graded or Modified Premium Whole Life Insurance
For those who only want to keep premiums low while having immediate death benefit protection, Term Life Insurance can be used. Most term life insurance contracts have a “convertibility” feature that allows a policy owner to convert the contract to a permanent life insurance contract in the future without having to show evidence of insurability.