Life insurance is often an essential component of a sound financial plan. It may be the most effective means of providing for your loved ones after your death. However, certain health conditions may prevent you from getting all the coverage you need. In this situation, graded benefit whole life insurance is one possible option. In short, this is a specialized insurance designed for people with a limited life expectancy.
Graded benefit whole life policies are typically issued on a guaranteed basis. Unlike other forms of life insurance, you won't have to answer any health-related questions or undergo scrutiny of your medical history. The only catch is your age may need to fall within a specified range. As a result, you may turn to graded life as a last resort after you've been denied coverage in the standard insurance market. Some people may also explore graded benefit life options if they believe a pre-existing medical condition prohibits them from getting insurance anywhere else.
Limited Benefit Feature
People holding these policies are usually in poor health. Therefore, the death benefit, which is the amount paid to the beneficiary when the policyholder passes away, is low during the early years of the policy. In general, the beneficiary can only expect a return of premiums paid plus accumulated interest at a rate of 5 to 20 percent if illness claims the policyholder two to three years after the policy is issued. The beneficiary may receive the full death benefit if the death is accidental.
Initial Period Rule
If the policyholder dies after the initial reduced benefit period, the beneficiary gets the full death benefit regardless of the circumstances. If the policyholder continues to make premium payments after that date, the policy will continue to accumulate cash value. The policyholders can get the cash with a low-interest loan.
A graded benefit whole life policy can make sense for ill people who expect to live more than two or three years but less than 10. That's according to the Financial Web website. However, graded benefit whole life features a relatively high cost in relation to the benefits it pays. Graded life policies also tend to accumulate less cash value than regular whole life policies due to the higher insurance costs.
Chris Joseph writes for websites and online publications, covering business and technology. He holds a Bachelor of Science in marketing from York College of Pennsylvania.