Graded whole life insurance is a type of life insurance. A graded whole life insurance benefit is the amount of money that will be paid out to the beneficiary when the person who is insured under the policy dies.
Definition
Graded whole life insurance is a type of life insurance policy designed to be valid for the insured's whole life.
Features
Graded whole life insurance--like other whole life insurance products--is designed to be an investment as well as insurance. As premiums are paid in, it also creates a nest egg or cash reserve that will build up to a certain date of maturity (usually when the insured reaches a specific age like 95) at which time it will be worth the same amount in cash that the person can withdraw even if they are living as it would pay out as a death benefit if the person died. In the meantime, the money in the reserve earns interest and the policyholder can even borrow against the cash value if desired. The insured pays for this insurance monthly, annually, or as otherwise pre-arranged for a specific period of time as outlined in the contract. Premiums may increase according to age, although some graded whole life insurance companies guarantee the amount of the benefit and the premium will not change.
However, graded whole life insurance, unlike other forms of whole life insurance, may not pay an actual life insurance benefit or payout if you die within the first two or three years (or the specified term in the contract--it can vary). During this graded time frame, it only pays back your premiums and dividends/interest or, alternatively, some companies will pay out a specified percentage of the benefit amount in the event of death within the first year, a higher percentage of the benefit amount in the event of death within the second year and so on. Most graded whole life insurance policies do pay a full death benefit if the death is accidental.
Graded whole life insurance requires no medical tests, exams or questionnaires to be completed so it is designed for people who do not have perfect health and may not otherwise be eligible to purchase life insurance.
Function
Graded whole life insurance is purchased to provide money that the family of the deceased can use to pay funeral bills and outstanding debt. This type of life insurance is generally only purchased when the insured is not eligible for other insurance coverage or has been denied coverage from other companies.
Benefits
If you have an ongoing or chronic medical condition that deems you uninsurable to many life insurance companies, graded whole life insurance usually does not require any medical questions, tests or an exam. You simply pay the premium based on your age and you get the benefits. Your coverage cannot be canceled by the company for the duration of your policy as long as you continue to pay your premiums. You may also be able to loan money against this type of life insurance policy.
Disadvantages
If you are terminally ill and in imminent danger of dying within less than two or three years (or the graded term specified), this really won't provide you with the life insurance benefit you require. Also, if you purchase whole life insurance in units, the value of the units purchased may decline over time, so the actual benefit paid may go down as you grow older. Be sure to read all the fine print.
Most graded whole life insurance companies only offer this policy to people between the ages of 40 and 85. The amount of life insurance you can purchase is also limited.
Cautions
Read all the terms of each company's offer before you decide on a graded whole life insurance policy to purchase, as many of the plans differ a great deal. There is no standard plan.
Tags: definition, graded, whole, life, insurance, benefit, life insurance, whole life, whole life insurance, Graded whole
