The best final expense insurance companies out there offer different types of coverage, including whole life insurance with a graded death benefit. And many people want to know,
“What is a Graded Death Benefit?”
A graded death benefit is a term used to describe a “clause” within every guaranteed issue life insurance policy, which will limit coverage paid out for “natural” causes of death.
This is an important term and why…
We wanted to take a moment and discuss what a Graded Death Benefit is, as well as answer some of the most common questions we get asked by clients who are considering purchasing a guaranteed issue life insurance policy.
Questions which will be addressed in this graded death benefit article will include:
- What is a Graded Death Benefit?
- Why are Graded Death Benefits a part of certain Final Expense Insurance policies?
- Are all Graded Death Benefits the same?
- What can I do to increase my chances of finding the “best” life insurance policy for me?
So, without further ado, let’s dive right in!
What is a Graded Death Benefit?
Simply put, a graded death benefit is a clause written into certain burial insurance policies, such as guaranteed issue life insurance, that is going to limit the death benefit payout during the first two or three years of the policy.
And by limit,
We are referring to the fact that a policy with a graded death benefit will have a period of time in which the policy WILL NOT PAYOUT the full death benefit if the insured dies from natural causes.
Why Do Some Final Expense Insurance Policies Have a Graded Death Benefit?
There are three types of final expense insurance policies out there. All three are simplified issue, which means they do not require a medical exam.
The three types of final expense insurance policies are:
- Level Benefit
- Graded Benefit
- Modified Benefit
A level benefit policy provides a level death benefit and level premium payment from day one that the policy goes in force.
A level benefit policy does not contain a graded death benefit. As a result, there are some health questions to navigate versus the following options.
A graded benefit policy is not to be confused with the term “graded death benefit,” although a graded benefit policy will contain a modified death benefit for the initial two or three years.
A graded benefit policy may pay out only 40% of the face amount in year 1. And in year 2, 70% of the death benefit would be paid, with the full death benefit paid out in year 3 and thereafter.
A graded benefit policy is easier to qualify for than a level benefit policy.
A modified benefit policy, such as guaranteed issue life insurance, contains a true graded death benefit. In the first two or three years of the policy, it will only pay out a return a premium, plus maybe 8-10%, for death due to natural causes.
Since modified benefit policies have a graded death benefit, they are much easier to qualify for than both the graded benefit and level benefit policies mentioned above.
For example, a guaranteed issue life insurance policy will have zero health questions. Now since it has no health questions, it will typically cost more than the other two final expense insurance options.
Is it fair?
Most folks aren’t going to be happy about purchasing a life insurance policy that contains a graded death benefit, we need to take a moment and explain why these “clauses” are necessary for an insurance company to be able to offer these “types” of life insurance policies.
When one applies for a traditional life insurance policy, they will need to “prove” or demonstrate that they can “medically qualify” for such a policy.
Which is why…
Most applicants will need to take a medical exam to qualify for coverage.
Now in cases where someone may choose to apply for a no medical exam life insurance policy, they will still need to answer a series of medical questions and allow the insurance company to order a wide variety of reports.
Reports such as:
- Personal medical records,
- A prescription medication report,
- A DMV report,
- A credit check (in some cases),
- A criminal background report,
- A Medical Information Bureau Report (MIB)
Which means that…
When an insurance company decides to approve your application for a “traditional life insurance policy,” they are going to have a considerable amount of information about you to base their decision upon.
Information that will…
Allow them to determine who they feel will be an acceptable risk and who won’t, which will also allow them to eliminate the need to require a Graded Death Benefit.
And here lies the problem…
With a Guaranteed Issue Life Insurance policy because, with these “types” of life insurance policies, an insured isn’t going to have to take a medical exam, and they’re not going to have to answer any medical questions which means that they won’t have any idea whether or not you’ve been diagnosed with any serious pre-existing medical conditions.
Insurance companies choosing to offer these “types” of life insurance policies also aren’t going to order supplemental reports on a client (in most cases) either.
In essence, the only thing that an insurance company will have to protect themselves from insuring someone who is seriously ill will be the Graded Death Benefit.
“Which makes sense, right?”
Otherwise, most people would choose to wait till the last minute before deciding to purchase their life insurance in cases where one’s death can be anticipated.
OK, so now that we understand “WHAT” a graded death benefit is, and “WHY” they are necessary, let’s examine whether all graded death benefits are the same.
Are all Graded Death Benefits the same?
No, not all graded death benefits will be the same. All of them WILL LIMIT when a guaranteed issue life insurance policy WILL GO INFORCE.
Some graded death benefits may end in two years while others will require an insured to wait up to three years before the policy will go “completely” in force. This is the main reason why you’ll want to know exactly what “kind” of graded death benefit is being offered to you.
But that’s not all…
Because it’s fair to say that the “final expense” insurance market is a very competitive for insurance companies to compete in, so, while all guaranteed issue life insurance policies will contain a graded death benefit, some insurance companies will try to make “their” graded death benefit more “palatable”.
More palatable by…
Including additional benefits to their policy which in some cases would return all the money that an insured paid into their policy during the graded death benefit period in the event that they died from a “natural cause” of death.
While the insured’s family wouldn’t receive the death benefit from the insurance policy, they would receive all of the money back that the insured paid to the insurance company.
“This benefit is only available with some insurance carriers and may also include interest on the money paid to the carrier”.
Which is why…
Fully understanding and comparing different graded death benefit clauses between the different final expense insurance companies should always be a priority when shopping for coverage. This brings us to the last topic that we wanted to discuss here in this article, which is…
What can I do to increase my chances of finding the “best” life insurance policy for me?
In our opinion, the best thing that you can do to ensure that you find the best final expense insurance policy that you can qualify for is to be sure that you always ask three questions when comparing policies.
How long will my life insurance policy last? Am I buying a term life insurance policy or a whole life insurance policy?
How much insurance coverage am I being offered, and will the amount ever change throughout the life of the insurance policy?
How much will I need to pay for my coverage each month, and will this amount ever change throughout the life of the insurance policy?
Does this policy contain a graded death benefit, and if so, can I see what it says exactly?
With this information in hand, you’ll then be able to accurately compare the different life insurance policies that you’re being offered and make an INFORMED decision, which is sure to help you find the “best” life insurance policy for you.
And the great thing is…
If you call IBUSA, we specialize in helping folks find quality final expense insurance policies and know which ones “tend” to provide the industry’s best coverage! So give us a call and let us show you what we can do for you!