If you’ve been denied life insurance because of a medical exam, you may feel stuck without the coverage you need. And while it may be true that certain types of life insurance may be out of reach, there’s still an opportunity to purchase coverage. One alternative, life insurance with a graded death benefit, can be an option for people who aren’t approved for standard coverage. Graded death benefits coverage is a type of permanent life insurance with no medical exam required.
How does graded death benefit life insurance work?
Graded death benefit whole life insurance coverage works differently from traditional life insurance in that it won’t pay the full death benefit to your beneficiaries if you die from illness, disease or old age within a few years of buying the policy. If your death is caused by an accident, like a fall or car crash, the exception on the full payout may be lifted.
Graded death benefits involve a schedule that helps you determine what kind of payment will be made based on when you bought your policy. Some policies will refund your premiums paid plus interest in the first year, then as a percentage. After three years, you can usually receive the full death benefit.
Regular term life insurance and whole life insurance policies don’t offer a graded death benefit. They’ll pay 100% of the death benefit to your beneficiaries right away, even if you die the next day after your policy goes into effect. However, these policy types usually require a medical exam.
Who are good candidates for graded life insurance policies?
Most of the people who benefit from graded life insurance are those with medical conditions that are either chronic or progressive, which leads to higher life insurance rates. A progressive condition may not be life-threatening, but could lead to unaffordable or unattainable life insurance coverage later. Common conditions that make you a good fit for graded life insurance include:
- Parkinson’s disease
- Alzheimer’s
- Coronary artery disease
- Diabetes
- Cancer
- Incapacitation
Because many of the chronic health conditions listed above are often present in older individuals, graded life insurance is typically geared more toward people who are age 50 and older.
Added benefit of Graded Life Insurance: Steady Premiums
One benefit of graded life insurance is that while the premiums may be higher due to the lack of medical exam, they are steady as opposed to annual renewable life insurance policies or term life insurance. No matter how long you own the policy, as long as the premiums are paid, the graded life insurance policy will be in effect and the rates won’t change.
Graded Whole Life Insurance and Contestability Periods: What’s the difference?
Graded whole life insurance is different from an insurance policy with a contestability period. In general, life insurance companies use the contestability period—often a two-year window—to investigate the accuracy of information on the life insurance application prior to paying a claim. Contestability periods exist to uncover any kind of misrepresentation during the underwriting process. If you die during the policy’s contestability period, it may take longer to pay out the death benefit to your beneficiary.
A graded death life insurance policy simply means that you won’t receive the full death benefit if you die of natural causes or of anything beyond an accident within the first few years that policy is in effect. Because a medical exam isn’t required, a graded life insurance policy isn’t subject to an investigation via the contestability period.
SelectQuote Can Help Answer Your Life Insurance Graded Death Benefit Questions
If you’ve had trouble buying a traditional term life insurance or whole life insurance policy, it may be worth exploring the benefits of a policy with a graded death benefit.
SelectQuote can help you compare rates from companies that offer this policy type and provide unbiased recommendations based on your unique needs. We shop for coverage so you can focus on managing your chronic illness.
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