What Is Modified Whole Life Insurance?

Modified life insurance is a type of insurance policy in which premiums remain fixed for a set number of years before increasing. This fixed period generally lasts 5-10 years. Premiums typically increase only one time, after which they usually remain consistent for the rest of the policy’s term. 

Modified life insurance differs from level-premium insurance, in which the monthly or annual premiums remain the same throughout the length of the policy. 

Modified life insurance is also called modified premium life insurance or graded life insurance. Modified life insurance exists for both whole life and term life policies but is most often found in whole life policies. 

What is the difference between whole life and modified whole life insurance?

The main difference between these types of life insurance is the change in premium amounts.

• “Whole life insurance” generally refers to level-premium policies that have a fixed premium for the duration of the policy.
• “Modified whole life insurance” typically refers to policies with a premium payment that will increase one time after several years. 

What are the advantages of modified life insurance?

Modified life insurance premiums may have lower premiums than other types of life insurance in the early years of the policy, which can make them more affordable for younger people who are in the earlier stages of their career.

Because the policy’s death benefit (also called the payout) stays the same, so the policy will pay the same benefit if the insured person passed away during the lower premium years of the policy as it would during the higher premium years. 

What are the disadvantages of modified life insurance? 

The main drawback of modified life insurance is that it’s typically more expensive in the long-term than level-premium life insurance. While offering premiums that are below those of level-premium insurance in the early years of the policy, those premiums then often climb above the market rate in the later years and will usually add up to more money spent in the end. 

A second drawback of modified life insurance is that there is often a waiting period of 2-3 years upon the start of the policy. That means the policy may not pay out any death benefits for an accidental death that occurs during that waiting period. 

Also, modified whole life insurance policies that contain a cash value component will accumulate value more slowly than level-premium policies because of the lower premiums in the early years of the policy. 

What is a modified death benefit?

Modified death benefits are more commonly referred to as “increasing” or “rising” death benefits. 

Policies with this option offer a death benefit that can increase in value over the years. This happens when the cash value accumulated in a whole life insurance policy is applied to the death benefit instead of being cashed out by the policyholder.

How is modified life insurance different from convertible life insurance?

Convertible life insurance is a type of term life insurance that allows the policyholder to convert their term policy to a whole life policy after a certain number of years. The premium will be adjusted when the conversion is made. 

As it relates to premium payments, this type of life insurance works very similar to modified whole life insurance. A rise in popularity of convertible term life insurance has resulted in modified whole life insurance becoming less prominent. 

Is modified life insurance right for me?

Modified life insurance is perfect for those who love the idea of having whole life insurance but can’t afford the premium payments of level-premium plans. Modified life insurance allows you to lock in a lower rate when you’re younger before transitioning to the higher rate once you’re more established in your career and your earnings are higher. 

Once the premium increases, you can cancel the policy if you decide you can’t afford the new rate. You can even receive some of your accumulated cash value upon cancelling, although you must pay taxes on any gains. 

There are many different types of life insurance and different options for premium payments, so it’s important to understand them all before making a decision. Call to speak with a licensed life insurance agent who can help you compare types of insurance to find the best policy for your needs.