A graded premium life insurance policy features a cost structure that gradually increases. Typically, the policy’s pricing starts lower than a traditional plan would cost, but they continue to rise annually for a specific number of years until reaching a fixed level.
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With a modified whole life insurance policy, you receive the same benefit of a lower cost, but for a longer time. Instead of having the monthly prices rise yearly, it would stay at a fixed low rate for five years (or a predetermined time). After the initial time limit expires, the prices rise until reaching the final fixed amount with less structure.
Both choices are worth considering for someone on a strict budget who wants to enjoy the benefits of whole life insurance.
Are Graded Premium and Modified Whole Life Policies the Same?
Graded premium and modified whole life policies are similar in that they both feature a premium structure that starts lower than a traditional plan but gradually increases over time.
There are some differences between the two insurance types to consider. With a graded premium policy, the premium increases are usually set at fixed intervals, such as every year or every five years.
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If you have a modified whole-life policy, the premium increases are typically spread out over a specific period, such as the first five years of the policy.
A graded premium policy tends to have larger and more frequent cost increases than a modified whole-life plan. The goal is to be affordable in the early years, then offer substantial increases when it may be easier to manage those expenses for the policyholder.
Graded Premium vs. Modified Whole Life: How Do the Price Increases Work?
In a graded premium policy, the premium increases are usually set at fixed intervals, such as every year or every five years. It can be a significant change, sometimes as much as 50% or more.
With a modified whole-life policy, the premium increases are typically spread out over a specific period, such as the first five years of the policy. During this time, the initial premium is lower than what it is for traditional policyholders. Afterward, the cost increases to a fixed level and remains that way for the remainder of its term.
With a modified approach, the cost increases tend to be less, making the change more affordable for the policyholder.
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Below is a table outlining the differences between two types of whole life insurance policies: graded premium and modified whole life.
| Feature | Graded Premium | Modified Whole Life |
|---|---|---|
| Premium Structure | Starts lower than traditional plan, gradually increases at fixed intervals | Starts lower than traditional plan, stays fixed for a predetermined time, then gradually increases |
| Timing of Premium Increases | Usually every year or every five years | Spread out over a specific period, such as the first five years of the policy |
| Magnitude of Premium Increases | Larger and more frequent cost increases | Smaller and less frequent cost increases |
| Goal of Premium Structure | To be affordable in early years, then offer substantial increases when it may be easier to manage expenses for policyholder | To provide lower initial premiums and more stable increases over time |
| Recommended for | Those who want a lower initial premium and can manage larger increases later on | Those who want a lower initial premium and more predictable increases over time |
I currently have a modified whole-life policy because that payment structure worked better for me than a graded premium. Request quotes from at least three providers to ensure you get the best rate and value for this investment if you’re considering life insurance today.
