Most life insurance policies have a simple payout: Your beneficiaries are paid the full death benefit. But if you have a life insurance policy with a “gradual death benefit,” your beneficiaries will not be paid the full death benefit if you die of an illness within the first few years after purchasing the policy.
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Life insurance policies that do not require a medical exam or request very little medical information during the application process, such as guaranteed issue life insurance, commonly have graduated death benefits.
Reading: What does graded life insurance mean
You can’t be turned down for a guaranteed issue life insurance policy, so it may be a good option if you have health issues and wouldn’t qualify for other life insurance, but be aware of how the benefit is rated by death works.
how are tiered death benefits paid?
If you have life insurance with a gradual death benefit and you die within two or three years of purchasing the policy, your beneficiaries will receive partial benefits, depending on how long it has been since you purchased the policy. The structure of tiered death benefits varies by insurance company.
here are some examples of how it might work:
- If you die after the first year or two of owning the policy, you may pay the beneficiary a refund of the premiums paid, plus interest. the amount of interest paid varies, but can be 10% the first year and 20% the second year. in the third year and after, it could pay 100% of the death benefit if you die.
- aig direct has a guaranteed life insurance policy for applicants ages 50-80. coverage amounts range from $5,000 to $25,000. If the person dies of natural causes within the first two years of the policy, a graduated death benefit will be paid ranging from 110% to 120% of the premiums. the full benefit is paid in the third year and thereafter.
- bankers life‘s basiclife tiered benefit policy has a tiered death benefit for the first two years. for the first year, the benefit is 110% of the annual premium for the first year, not including the policy fee. for the second year, the benefit is 120% of the annual premium for the first two years, less the policy fee. in subsequent years, the policy pays 100% of the death benefit.
- fidelity life‘s rapidecision guaranteed issue life plan allows you to purchase $25,000 in coverage when you are between the ages of 50 and 85. there is a graduated death benefit in policy years one through three, with full death coverage. benefits in year four and beyond.
- gerber life offers a guaranteed life insurance policy for people ages 50 and 80 with coverage options ranging from $5,000 to $25,000. a gradual death benefit applies in the first two years of the policy. If a death occurs for any reason other than an accident, premiums plus 10% interest will be paid to the beneficiary.
- aaa life insurance
- alpha insurance
- colonial prison
- Omaha Mutual
- vantis life
If you die in an accident, such as a car accident, a life insurance policy with a tiered death benefit would pay the full amount of coverage, regardless of when the accident occurs.
once the time limit for a gradual death benefit passes, your beneficiaries will receive the full coverage amount of the life insurance policy.
Tiered death benefits are not found in standard and whole life term life insurance policies. These types of life insurance generally pay the full amount of the death benefit, regardless of when you die (generally excluding suicide in the first two years of the policy).
Is life insurance with a gradual death benefit right for you?
Tiered death benefits are often part of guaranteed issue life insurance policies. If you can’t qualify for a traditional life insurance policy due to your health, you may be looking at a guaranteed issue policy.
You might also be considering a guaranteed life insurance policy if you want to put down a small amount of money to pay for funeral expenses, cover small debts, or pay medical bills.
It’s important to note that you generally must meet certain age requirements to apply for a guaranteed life insurance policy. Many insurance companies that offer these policies won’t sell you new policies after age 80 and have a minimum purchase age of between 40 and 55.
pros and cons of guaranteed issue life insurance
The main advantages of a guaranteed issue life insurance policy are that you can qualify for a policy regardless of your health status, there is no medical exam, and the application process is super quick and convenient.
a big disadvantage is the price. Guaranteed issue life insurance is among the most expensive types of life insurance. limited payments are also available, sometimes no more than $25,000. staggered death benefits are another downside.
cost of guaranteed issue life insurance
Guaranteed issue life insurance policies are expensive and can be two to three times more expensive than traditional life insurance. why are they so expensive? the insurance company is taking a risk by issuing a life insurance policy without knowing anything about your health.
The tiered death benefit reduces risk to the insurance company. If seriously ill people buy policies and die within two or three years, the insurance company won’t have to pay the full death benefit to beneficiaries.
Guaranteed issue life insurance policy rates are based on the applicant’s age and gender.
life insurance companies with graduated death benefit policies
The first step in buying a policy is deciding how much life insurance you need. For example, if you’re buying a policy to pay for burial expenses and a credit card balance, get the amount of coverage that equals these costs.
once you know the amount you want, you can start looking for life insurance policies from different companies. here are some examples:
Other companies with guaranteed issue life policies with graduated death benefits include:
Guaranteed issue life insurance has its place, but don’t assume you can’t qualify for a more traditional policy. work with a life insurance agent who can try to get several quotes on traditional life insurance first.