Graded Benefit Whole Life: Learn Your Options

The most frequently aired TV life insurance advertisements promise guaranteed life insurance with both a benefit and a premium that will not change as you get older. Usually, they display an unbelievably low price—such as "only 7.95 per unit" and promise guaranteed coverage. The fine print at the bottom of the screen, below the large telephone number, tells you that coverage is limited during the first two years. (Use our online service to request a free life quote >>)

The advertisement is for Graded Benefit Whole Life, known as GBL. It is whole life, and it is true that the premium will not go up. The "graded" part means that for the first two years it will pay only your premium plus interest. The amount of interest varies by company, but it usually ranges from 7 to 10 percent. At least one company gives 10 percent in the first year and 20 percent in the second year. In the third year, your beneficiary receives the full face value. If the death is accidental, there is no waiting period.

Graded benefit policies are a god-send for people who will most likely live at least two years but have medical conditions that disqualify them for any other kind of coverage. If you are insulin dependent, confined to a wheel chair or a nursing home, a cancer or heart disease patient, or have a cognitive impairment such as Alzheimer's Disease (and this is not a conclusive list) you will be unable to purchase any other kind of life insurance from any company. In fact, depending on the severity of your illness, you not even be able to get the expensive "pre-needs" insurance available only through funeral homes. In such instances, a graded benefit may be better than no life insurance at all. Some companies allow you up to $25,000 of coverage, although the premium may be nearly double that of traditional universal or whole life.

Very few companies offer GBL insurance to those under the age of 50, although there are a few who do. If the price is quoted as "per unit," you will be paying a set price for any given number of units, but the face value of the unit drops according to your age at the time of purchase. Once you have it, it does not change. For example, a unit for a 50 year old is about 1200 for a male, slightly more for a female. So if the company allows you to purchase 12 units—the usual max—a 50 year old female can get about $15,000 worth of insurance. That same unit however, drops in value as you get older, and by the time you are 80, 12 units may only be a couple thousand in face value. After age 79 or 80, depending on the company, you may not be able to purchase it at all.

Graded benefit life insurance ads promise "no health questions." This can be good or bad. The company will not ask you about your health; they will simply send you the information and the prices, and it is up to you to figure out if you actually need a GBL. If you call a TV number or return a mail order flyer because you have the impression that the insurance is cheap, and not because you have previously been turned down for health reasons, you will be making a mistake and will actually be purchasing something much more expensive or with much less coverage than you may be eligible for.