Graded Benefit Life Insurance
Graded Benefit Life Insurance – Benefits paid to the insured increase yearly until the max benefit grade has been reached. Also, the application process includes no medical exam or health questions.
Advantage: No health questions or medical exam and benefits increase with time.
Disadvantage: High premiums and risk of low death benefit.
Features of Graded Benefit Life Insurance
- Death Benefit
In a graded death benefit policy, the death benefits are not level. Policyholders will be paid a certain percentage of the death benefit if death should occur in year one, a larger percentage if death occurs in year two, and so on. By year five, most graded death benefits have reached a level death benefit.
Premiums for graded death benefit policies are generally higher than those for standard policies since the policyholder presents greater risk to the insurance company. Even though the death benefit is not level, premiums are.
- Cash Values
When buying a graded death whole life insurance policy, your policy will accrue cash value at a fixed rate for the life of the policy.
Graded death benefit policies endow by age 100 or 120. This means that the cash values of the policy are equal to the death benefit and no further premium payments are necessary.
- Cash Surrender
When surrendering a graded death whole life policy, you will only receive the cash values accrued at the time of surrender and will lose out on the death benefit. If your health has gotten worse, this could be a bad decision since you may no longer qualify for a new graded death policy.
Typically a graded benefit life insurance policy is purchased by applicants that have serious health concerns. Because most death benefits plateau by the fifth year customers are often expected to expire within that time period. In fact, insurance companies are not likely to sell graded life insurance to anyone that is under 50 years old.