Insurance Maze Blog

Feb 12

“Graded Benefit” Life Insurance

Category: Life Insurance post

February 12, 2008

There are situations in which we find ourselves needing more life insurance coverage, but due to health problems, we just can’t buy life insurance, at least at the standard insurance premium. There is an option available and it is known as “Graded Benefit Life Insrance”.

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Graded Benefit Life Insurance Policies Have Common Features:

Permanent Life Insurance With a Guaranteed Death Benefit.

Some policy types use a percentage of the selected life insurance face amount as the amount that would be paid if death should occur in the first two or three policy years (Example #1).

Other types of Graded Benefit life insurance programs use a percentage of premiums paid to calculate the death benefit that would be payable in the first two or three policy years (Example #2).

Example #1: Let’s assume that you have purchased a $10,000 Graded Benefit life insurance policy with stated death benefits of “30%” - “70%” - “100%“. This means that if death should occur in the first policy year, the death benefit would be 30% of the face amount - or $3,000. If death occurs in the second policy year, the death benefit would be 70% - or $7,000. If death occurs in the third policy year or later, then the death benefit would be 100% - or $10,000.

Example #2: Let’s assume that you purchased a $10,000 Graded Benefit life insurance policy with a stated death benefit of “110% Return of Premium In The First Two Policy Years” and your life insurance premium is $800 per year. Let’s further assume that death occurs exactly at the end of the first policy year. The death benefit payable would be 110% of $800 - or $880. If death occurs exactly at the end of the second policy year, the death benefit would be 110% of $1,600 - or $1,760. If death occurs at any time after the second policy year, the full death benefit of $10,000 would be payable.

Both Graded Benefit life insurance policy types will normally pay the full selected face amount if death occurs by accidental means.

Guaranteed Issue

These life insurance policies are guaranteed to be issued without health questions or underwriting. However, some of these policies require that a person not be terminally ill or confined to a nursing or long term care facility.

Level Life Insurance Premiums

The premiums for most Graded Benefit life insurance programs never increase due to age or any other reason.

So, if you are currently shopping for Graded Benefit or Guaranteed Issue life insurance, please compare the benefits, as well as, the price.

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