If you are in poor health, you may have trouble buying whole life or term life insurance policies from most companies. While expensive, graded benefit whole life (GBL) insurance is almost always guaranteed, you can’t be turned down and coverage will last for your entire life, no matter how long, as long as you continue to pay the premiums.
Graded benefit whole life insurance, or GBL, provides a payout to survivors in the event of the insured’s death. The payout is “graded” because in the first few years, the payout will only be the amount of premiums paid, plus interest (anywhere from 5 to 20 percent, depending on the company and policy). This initial period can last anywhere from 2 to 7 years, and after it’s over survivors will receive the full face amount of the policy as a death benefit. Most policies will pay the full amount even during the initial period if the death is accidental.
GBL policies are usually issued without asking the insured any health questions. This can be important for those who expect to live more than two or three years, but have been denied other life insurance coverage due to poor health or pre-existing conditions. Because it is whole life, the premium will never increase, no matter how long the insured lives. A GBL policy can never be canceled as long as you continue to pay the premiums.
Like other whole life policies, GBL policies have a cash value component. In the first few years, the cash value will be low, but it increases the longer the policy is held. Many policies will allow you to borrow against the cash value with a low interest loan. A policy may be surrendered at any time for the full cash value, but you should be careful if choosing this option, because you may not qualify for a new policy. When the cash value reaches the amount of the death benefit, no further premiums are required, although this generally does not happen until age 100 or even older.
While the premiums for a GBL policy will never increase, they are usually much higher than those of other life insurance policies. Also, if you die during the initial low payout period, the death benefit paid will be very small and may not be enough to cover your survivors’ needs. GBL policies are sold in “units” and the value of each unit varies depending on age. So while 12 units (which is the maximum most companies will allow you to buy) may be worth, for example, $20,000 for a 50 year old, they may be worth $4000 for an 80 year old. Once you purchase the policy, the value of the units never changes.
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