Graded Benefit Whole Life Insurance Definition

Graded Benefit Whole Life Insurance Definition

What does graded benefit life insurance mean? Not only are we going to give you the “Graded Benefit Whole Life Insurance Definition“, but we’ll go over why it’s a great product for some and a waste of money for others. Do you also want to know what is the best life insurance company for graded benefits? We’ll cover that too. Let’s get started!

PROS

Graded benefit policies are available with Simplified Issue and Guaranteed Issue life policies.

CONS

Graded benefit policies have a waiting period (usually 2 years) before the full death benefit is available.

Graded Benefit Whole Life Insurance Definition

Graded Benefit Whole Life is defined by when the life insurance death benefit will not be paid for the first two to three years, unless the death is accidental. 

In other words, a graded death benefit is a waiting for those with significant risk factors that make traditional life insurance policies with immediate coverage unattainable.

The term graded benefit is most commonly used with Final Expense, Simplified Issue and/or Guaranteed Issue policies. Life insurance companies offer these policies without a medical exam or traditional underwriting. Since there is no underwriting with graded death benefit policies, life insurance companies take on a significant risk. This results in higher premiums compared to other types of life insurance

Waiting period?… Why would I buy a graded benefit policy?

This question is asked a lot. First, there is no risk in buying a graded benefit life insurance policy.

What I mean is…If you die during the waiting period – you won’t lose that money. Your premiums will be refunded plus interest (typically around 10-20%). Every company is different with their graded benefit terms.

Some companies even pay a percentage of the death benefit. Below is an example of a 20% interest on premiums paid for a Year 1 Death. For Year 2,  20% of the death benefit will be paid. You can see that the full death benefit is available starting in year 3..

graded death benefit

Here’s the good news

A Graded Benefit whole life policy provides an excellent opportunity for people to buy life insurance who typically would never be able to qualify for a policy.

These policies are a type of no medical exam life insurance. However, they may have some health questions (more on that soon). The application is very easy and fast. Applications are typically completed online and over the phone.

Here’s the bad news

Graded benefit whole life insurance doesn’t provide day one coverage like traditional policies like term life or whole life insurance. The graded benefit is another way of saying there’s a waiting period until the entire death benefit is available to you. This waiting period is usually 2 years, but it can be different from company to company. Some companies have a 3 year graded benefit.

What company is the best?

Are you just looking for quotes or the best graded death benefit life insurance companies? We reviewed the top rated companies for guaranteed issue with graded benefits right here.

Who should buy graded death benefit whole life insurance?

Graded benefit whole life insurance is a policy of last resort. Why?…because you’re buying a policy that has a waiting period. These graded death policies come in 2 different forms:

  1. Simplified Issue
  2. Guaranteed Issue

With a Simplified Issue Graded Benefit life insurance policy, you must answer medical questions to qualify for it. They’re called “Simplified Issue” because the application only asks a few knockout questions to qualify. 

Simplified Issue vs Guaranteed Issue?

Here is a quick rundown on the pros and cons of graded benefit Simplified Issue life insurance and Guaranteed Issue life insurance.

Pros

  • Simplified Issue has higher face amounts -some companies offer over $100,000 benefit (this is much higher compared to Guaranteed Issue) 
  • Guaranteed Issue does not have any health questions
  • You can’t be declined due to health with Guaranteed Issue

Cons

  • Guaranteed Issue has smaller face amounts (Maximum of $25,000)
  • Guaranteed Issue is the most expensive
  • Both Simplified and Guaranteed Issue have graded benefit waiting periods of 2-3 years
  • You need to pass the health questions with Simplified Issue

What if I can’t pass the health questions?

That’s where a Guaranteed Issue graded benefit whole life insurance policy comes in. When you first speak to your life insurance agent, they will find out if there are any companies that you can qualify for in order to save you money (and get covered immediately).

If you can’t qualify for Simplified Issue, then a Guaranteed Issue graded benefit whole life policy is your only opportunity for coverage.

Graded Benefit Health Risks

What kinds of health risks or knock out questions would make a graded benefit life insurance policy your only option?

There are some common situations where you would need to buy a Guaranteed Issue graded benefit life insurance policy. Each company may have different health questions on their application, but the following questions are fairly common. 

Can you answer “No” to all the questions below?

  • Has you been diagnosed or received treatment for: Human Immunodeficiency Virus (HIV), Acquired Immune Deficiency Syndrome (AIDS), or AIDS Related Complex (Arc)?
  • Have you been diagnosed with a terminal illness?
  • Do you have a disability that where a wheelchair is required?
  • Are you confined to a nursing home or other facility?
  • Have you received a diagnosis of heart disease, kidney disease, cancer, diabetes or another serious illness in the last 24 months?
  • Have you had a stroke?
  • Do you have Alzheimers any other cognitive impairments?

If you answered “Yes” to any of the questions above, a graded benefit individual whole life insurance may be your only opportunity for coverage.

graded benefit life insurance companies

graded benefit life insurance companies

I stress the word “may” because some companies have different health questions. Some life insurance companies ask more than others. It isn’t like every company has the same questions on their applications.

With that said, if you are unable to qualify for any traditional life insurance policy, here are our recommendation…

Top 3 Graded Benefit Life Insurance Companies

These graded benefit whole life insurance companies typically show up with the best rates when we run quotes for our clients. Here are the best guaranteed issue life insurance companies available:

  1. AIG
  2. Mutual of Omaha
  3. Gerber Life

Each of these companies are rated “A” or higher from A.M. Best. This shows that they are financially strong and have excellent reputations. If you’d like to learn more about these companies check our reviews on AIG, Mutual of Omaha and Gerber Life. Once again, these are only a few of the companies available. Your agent should be asking your the health questions like the ones above to see exactly what type of policy and which company can give you the best deal.

How to buy the best graded death benefit life insurance policy?

We cannot stress enough the importance of using an independent life insurance agent to help you find the best life insurance products at the most affordable price possible. 

Independent life insurance agents have access to multiple companies. We know which life insurers offer the best rates when it comes to buying graded death benefit life insurance.

We hope this article gives you a good overview of these policies. They are a great solution for many shoppers who can’t otherwise qualify for traditional coverage.

graded death benefit life insurance policy

If you need any help or have any questions, please let us know. Life Insurance Blog is an impartial life insurance broker who represents dozens of life insurance companies. We help our customers pick the best life insurance carrier and options that’s right for them. We do not push any companies because we have access to all the top life insurance companies. We don’t try to put shoppers into a plan that is not suitable for their goals and needs. Our number one concern is our clients and future policyholders.

We offer you free life insurance consultations and work with you to understand your goals and then help you with an appropriate recommendation.  So, what are you waiting for?  Contact us today or visit our Life Insurance Quotes page and see how we can help you!

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Michael Quinn

Michael Quinn

Michael is owner & life insurance expert at Life Insurance Blog where we've helped thousands of shoppers learn and secure affordable life insurance online.
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