For all of you insurance nerds out there, there is a difference between graded whole life and modified whole life. Modified whole life is the more general term – it is any whole life plan where the benefits change over time. Ordinary whole life never has a change in benefits. Graded whole life is a subset of modified plans. Graded plans have a percentage of the death benefit that will only pay for accidental death during the first two or three years. There are two types of graded policies.
One type is often found on TV commercials and junk mail, talking about guaranteed acceptance and no medical questions. In exchange for no medical questions, the policy doesn’t pay any death benefit for the first two years unless its an accidental death (accidental death triggers all of the death benefit to be paid). In the case where its not accidental, all premiums are refunded along with interest. I’ll have a future blog post that discusses why people shouldn’t automatically jump to these plans without talking to an agent about qualifying for something better. Long story short, you should aim to get a simplified issue whole life policy to cover your burial or cremation needs.
Another type of graded whole life is less extreme and offers a gradual increase in the percentage of death benefit paid for non accidents. This type has a very small amount of underwriting. All graded plans behave the same as an ordinary whole life policy once the limited coverage period ends.