What you Should Know About Graded Benefit Life Insurance

You see those commercials on television about life insurance promising a policy that guarantees coverage with premiums and a death benefit that remain the same as you grow older.

The commercial usually shows one friend telling another about the extremely low price, usually a cost per unit. There are some important details left out of these commercials, and the following four points will help you understand a bit more about graded benefit life, the insurance offered on these commercials, and whether it really makes sense for you.

What is Graded Benefit Life Insurance?

Graded Benefit Whole Life, or GBL, is a permanent life insurance policy, rather than term insurance — which sounds good so far. However, the “graded” part of the policy is what you need to understand. It is true that the premiums will not increase, but the policy pays your beneficiary only your premiums paid, plus interest if you die within the first two years after purchasing your policy.

Interest rates range from seven to 10 percent, although a few companies may offer up to 10 percent the first year and 20 percent the second year. If you die within the third year or later, your beneficiary receives the full face value of the policy. If the policyholder has an accidental death, the beneficiary receives the full face value immediately. Following are four other things you need to know before choosing GBL insurance.

#1 – Level Premiums

The level premiums that come with GBL insurance might be important to individuals living on a fixed income, who need to know their expenses will not increase as they age or as their health deteriorates.

Level premiums are a nice feature because many life insurance policies, especially certain term insurance policies, either charge higher premiums with each renewal, or cost so much to get into for people over age 65 that they are not affordable. Additionally, any health conditions may cause term insurance rates to rise even more over time.

#2 – The Best Candidates for a GBL Policy

GBL insurance is a great option for a person that knows they will most likely survive at least two years, but also knows they have medical conditions that make other types of life insurance unavailable.

For individuals with health issues including insulin-dependent diabetes, cancer, heart disease, Alzheimer’s disease or any condition that keeps you confined to a wheelchair or nursing home, no other life insurance company will provide you with coverage. In this case, GBL insurance may be better than nothing, although you will pay for it — possibly as much as twice the cost of standard permanent insurance.

#3 – Age Requirements

Most companies selling GBL insurance cater to people age 50 and above, although a few will offer it for younger individuals. The prices are often quoted in units, and the policyholder pays a set amount per unit, up to a certain maximum. The face value of each unit is set according to the person’s age when the policy purchase takes place, and once you have the coverage at that price, it stays the same for the duration of the policy.

As an example, a 50-year old male might pay about $1,200 per unit, while 50-year old females pay slightly higher rates. Insurance companies selling GBL policies usually have a maximum allowance for purchased units; typically about $15,000 total.

The value of each unit drops as a person ages, meaning the amount of insurance face value available to purchase diminishes, the older you are when you buy the policy. For people aged 79 or 80, the maximum of 12 units may provide only a few thousand dollars of coverage. Depending on the life insurance company, an 80-year old may no longer qualify for coverage.

#4 – No Medical Exam

Graded benefit life insurance does not require a medical exam to qualify for coverage. This is good news for some people that have health markers considered risky or unacceptable by other life insurance companies. The downside comes when you see the cost.

GBL insurance is not intended to be a bargain — it is geared towards individuals that need life insurance but cannot get it elsewhere. These individuals usually represent a much higher risk than the average life insurance candidate, and insurance companies charge higher premiums to compensate for the additional risk.

Considerations

When requesting information from a company selling GBL insurance, do not expect the company to help you make the decision about whether you need this type of insurance, especially if responding to a television ad. The company will mail you the insurance information and a price list, and it is your decision whether to buy the policy.

If you are interested in purchasing the coverage simply because the rates seemed low, you owe it to yourself to get quotes from other companies first. Unless you have already been turned down by other insurance companies for health reasons, it is worth the time investment to get quotes from other life insurance companies.

Using the Internet, you can provide your information and have quotes for life insurance within about 10 minutes — and who knows? You might just find the perfect life insurance deal waiting for you.

 

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