Low Premium Increases Then Levels Off
One of the less known life insurance policies is the graded premium life insurance policy.
This is a whole life type policy that starts out with a lower than usual premium which increases every year for a certain number of years and then levels off and remains level for as long as you own the policy.
If a person desires to own permanent life insurance and is unable to afford the full premium initially then the graded premium life policy may be a fitting alternative. The graded premium life policy is sometimes referred to as graduated premium life insurance.
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Graded Premium Life Insurance Pros And Cons
Advantages Of Graded Premium Life
- The policy has a level death benefit for as long as it remains in force. This can be distributed in a lump sum or in the form of an income.
- This policy begins with a lower than usual premium. It is actually much lower than the premium for whole life insurance. The premium increases usually for 5 or 10 years.
- After the initial years of premium for the graded premium life insurance policy increase the premium levels off and remains level for as long as you own your policy.
- The policy has cash values. If you are in need of cash at any time after the policy has earned a cash value you may borrow up to approximately 80% of it without loosing your life insurance policy.
- Depending on the investment performance of the life insurance company and how well they keep down expenses…the policy may earn a dividend. Dividends are not guaranteed.
This dividend can be applied in several ways. It can be used to purchase paid up additions, be used to reduce premiums, be left to accumulate interest or it can be paid to you in cash every anniversary of the policy.
Disadvantages of Graded Premium Life Insurance
- The initial premium is pretty low but when it levels off in 5 or 10 years the premium for this policy is usually higher than that of a regular whole life policy had it been purchased at the age the applicant was initially. In the long run you may end up paying much more for the privilege of starting out at a much lower premium.
- Cash values grow much more slowly initially. As a greater percentage of the premium in the initial years is applied to death benefit less is applied to cash values. You therefore will find that your cash value build up is miniscule compared to other permanent plans.
For an additional premium the waiver of premium rider may be added to your graded premium life insurance policy. You may also add the accidental benefit rider .
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