- Learn how graded benefit whole life can benefit you and your family.Family portrait of young family on picnic image by YURY MARYUNIN from Fotolia.com
Purchasing life insurance normally requires that you answer a health questionnaire, called underwriting, before you qualify for a policy. This process eliminates individuals with health issues that the insurer determines will make them too big of a risk. Some policies offer simplified underwriting. These policies have fewer health questions, thus making it easier to qualify, but you can still be denied coverage. There is only one type of whole life policy where coverage is guaranteed despite any health issues. These policies are called "Graded Benefit Whole Life" and require no underwriting. - The policy will pay a death claim when you die without you worrying about a cancellation of benefits. However, unlike ordinary whole life, where beneficiaries receive the full face value of the policy no matter when you die, graded-whole life insurance benefits build gradually over time. Benefits typically equal just the premiums you've paid to that point, plus some amount of interest (determined by the insurance company) for the first few years of the policy.
- Cash value also grows differently under graded-whole life.Cash value represents a cash reserve, a literal savings amount, that builds up against the value of the death benefit. In traditional whole life coverage this reserve, and the investment return on it, serves to keep premiums level as you age. Also, if you decide to cash in your policy before it is paid up, you will receive that cash value or you can borrow on it.
With graded-whole life, the cash value serves the same purpose, however it will generally accumulate at a slower rate than in an ordinary whole life policy. This is largely due to the fact that the death benefit you receive, and the face amount of insurance you purchase, are not the same dollar amount in the early years of the policy. - The main benefit of graded-whole life is guaranteed coverage. If you cannot get insurance any other way, guaranteed whole life allows you to protect your family with some type of coverage. Like other forms of whole life insurance, you also get guaranteed cash value that can be borrowed against in the future if you need money in an emergency. This money is often available at very attractive interest rates that rival any bank loan, but you won't need to apply for the loan. All you need to do is request a policy loan from the insurance company. In essence, you are able to get the same benefits (or very similar benefits) from a graded-whole life policy as you would with an ordinary whole life policy.
- Guaranteed, graded-benefit whole life is expensive. You generally pay twice as much as ordinary whole life or universal life insurance for guaranteed whole life insurance. Benefits are graded, which means that your survivors may not receive the full face amount of insurance if you die before the policy is paid up. For these reasons, this type of policy is considered a "last resort" in regards to life insurance and is generally purchased as burial insurance in smaller amounts than ordinary whole life.
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