What is  a Graded Death Benefit?

A Graded Benefit enables a policyholder to get Permanent Life Insurance without having to first qualify to receive that coverage based on that person’s health or the result of that individual’s medical exam. This is because policies with these types of death benefits are typically offered to those who cannot obtain coverage through traditional means due to an adverse health condition.

There are numerous “guaranteed issue” life insurance contracts that contain provisions allowing for graded benefits during the first several years of coverage. For example, there may be  a two year, or sometimes a 3 year, waiting period – depending on the insurance company –  before a Graded Death benefit policy will pay out the full amount of the death benefit.

In this case, if the insured doesn’t live past the 2 or 3 year waiting period, the policy will return all premiums paid in — plus typically a 7-10% interest – depending on the company guidelines, to the policy’s named beneficiary.

A graded death benefit policy is only appropriate for an individual who cannot qualify for a fully underwritten life insurance policy. This is because the premiums that are charged for these plans are usually quite a bit higher than those of traditionally, or medically, underwritten life insurance policies – in some instances, two to three times more than that of comparable coverage. These policies may, however, be the only option that some people have for obtaining the life insurance coverage that they need. This is why they are often referred to as life insurance policies of last resort. Therefore, if there is a chance that an individual may be able to qualify for a medically underwritten life insurance policy, that could be his or her better alternative.

Graded plans are also known as guaranteed issue life insurance. Some of the common features on a guaranteed issue life insurance policy may include the following:

  • Min Death Benefit: $5,000
  • Max Death Benefit: $25,000
  • Typical Ages offered: 50-80