- Modified life policies have a lower premium rate initially, and then increase once after a two, three, or 10-year period
- Policies can cost as little as $55 per month depending on age, location, and overall health
- Modified whole-life policies offer substantial death benefits and provide permanent coverage
Searching for the right life insurance policy can be a daunting task. With so many options available to you, it’s difficult to decide which policies best suit your needs. We’re hoping to make the process a smoother one for you and your loved ones.
Below, we’ve taken a look at modified life insurance and all of its components. Continue on to learn more about modified whole-life, term-life, and adjustable life insurance policies, and how they may, or may not, be a good fit for you.
What is modified life insurance?
Modified life insurance, also known as modified premium life insurance, is a whole-life insurance policy that initially has a low monthly rate (for up to 10 years), and then a higher rate for the duration of the policy. Following this period in the policy, the full benefit is payable for any reason.
Although modified life insurance policies can be costly, and even confusing to understand, they offer a higher death benefit sooner than other life insurance policies. This relieves you from having to wait to buy coverage, or more coverage, later in life.
Is there a difference between modified life and standard whole-life insurance?
Although modified life policies are whole life policies, there are some differences between the two:
- Premiums. With standard whole-life insurance policies, premiums stay the same for the life of the policy. With a modified life policy, the premium changes once.
- Cash contribution. Premiums go toward your policy’s cash value right away with a standard whole-life policy. With a modified life policy, your policy’s cash value doesn’t increase until your premium does.
- Introductory period. Standard whole-life policies don’t have an introductory period. Modified life policy waiting periods can be two, three, or even up to 10 years long.
Additionally, modified life policies can be significantly more expensive, and complex, than other life insurance policies. You may be able to find similar coverage at a lower rate by shopping around and understanding all of your options for the best life insurance for you.
Is there more than one type of modified life insurance?
There are three main types of modified life insurance:
Modified whole-life policies maintain a steady death benefit with a one-time changing premium following an introductory period. Modified whole life policies come with a cash value component, and the policy lasts for your lifetime.
Modified term-life policies also maintain steady death benefits with a one-time changing premium following an introductory period. Modified term-life policies don’t usually come with a cash value component, and policies expire after a predetermined period of time (usually up to 20 years).
Adjustable life policy
Adjustable life insurance is a hybrid of both modified whole and term life insurance. With an adjustable policy, the policyholder can adjust policy features such as period of protection, premiums, and duration of premium payment. These policies also include a cash savings component.
Modified life insurance may also go by other names, such as modified premium life insurance, graded life insurance, modified whole life insurance, and modified term life insurance.
How much does a modified life policy cost?
Although you will pay a lower rate during the introductory period of your modified life policy, it should not be confused with a discount. Contrary to how it may seem, you will make up the difference in what you’ve paid for your rate once this period is over.
It’s important to keep in mind that every insurance company will have different prices for modified life policies. On average, a 50-year-old woman in good health who’s seeking $20,000 in coverage can expect to pay around $55 per month.
Monthly rates are decided based on gender, location, health, and age. It’s important to shop around to find out exactly how much you’d be paying for your modified life policy.
What are the pros and cons of a modified life policy?
Every life insurance policy has its good and bad elements. Modified life insurance policies are much more complex than standard coverage options. Here are a few things to think about if you're considering a modified life insurance policy:
- Those with serious health conditions can still be accepted.
- Most plans have limited or no health underwriting.
- Following your introductory period, rates will never increase.
- Coverage is permanent (unless your account lapses).
- There is a waiting period.
- Premiums eventually increase once.
- May be the only way to obtain new life insurance (depending on health status).
- Less cash value earnings.
- Paying more than you would for term-life coverage.
When all is said and done, it’s important to remember that modified life insurance is a more robust final expense insurance. With that in mind, it’s important to do plenty of research to find out what types of life insurance policies will suit your needs best.
What happens to the premium of a modified life policy?
Since modified life insurance policies have an alternative premium payment structure, the rate typically increases once, following the introductory period. Following this increase, your premium rate levels out for the duration of the policy.
This premium payment structure may be considered a positive if you’re unable to secure alternative life insurance. You may also expect to earn more money in the future, and so the payment structure, combined with a higher death benefit, may be a worthwhile risk for you.
A modified life policy has many complex moving parts. Be sure to fully understand what you’re purchasing before moving forward with your policy.
Is modified life insurance right for me?
In general, standard whole-life insurance is expensive and complicated. Unfortunately, modified life insurance policies are even more so. In addition to being bound to a waiting period, your rates will increase (once) over time, which can be financially challenging if you are on a fixed budget.
Additionally, since rate payments within the introductory period do not count toward the cash value of your policy, it’s important to remember that you will be missing out on these savings. If for any reason your policy lapses, for example, due to lack of payment, you could lose the policy, leaving you and your loved ones in the tough position of not having coverage.
When all is said and done, a modified life insurance policy can provide permanent life insurance coverage with a high death benefit, which is most beneficial for young policyholders who may not otherwise be able to afford them. Be sure to take a look at your budget and speak to a professional about life insurance companies coverage costs before moving forward with a modified life insurance policy.
Modified Life Insurance: The Bottom Line
Modified life insurance is a whole-life insurance option for those who want permanent coverage at a lower rate. It’s important to remember that although your rates will be lower early on in the life of the policy, these rates will eventually increase once your introductory period has ended.
Policies are designed to suit younger individuals who want permanent, whole life insurance coverage, but who may not be able to afford it until later in life.
Modified life insurance is a good choice for those who want life insurance, and who plan to earn more later in life to be able to accommodate the policy’s one-time raised premium rate. It is worth looking into all types of life insurance, modified and standard, to find what policy is best for you and your loved ones.