What Is Graded Benefit Whole Life Insurance?

By: Gregory Gambone

Graded benefit whole life may be the only option for certain individuals.

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A life insurance policy is a contractual agreement with an insurance company to pay your heirs a sum of money if you die while the policy is active. Insurance companies take great steps to evaluate the liability presented by applicants, and will decline coverage to people who are deemed an unacceptable risk. Graded benefit whole life policies are specific products made available to people who cannot obtain coverage through traditional means.

Whole Life Insurance

Whole life insurance is a type of permanent policy designed to last forever. Once issued, your premiums never increase and your benefit never decreases. These policies accumulate cash value and earn dividends, a form of interest credited to the cash value by the insurance company. Whole life is the oldest type of life insurance, but often more expensive than other products.

Guaranteed Issue Policies

Some life insurance companies offer guaranteed issue policies to consumers who prefer not to undergo traditional underwriting, which typically includes medical exams and long questionnaires. Guaranteed issue policies are approved without having to go through a litany of questions, medical exams and medical history reviews. These policies are more expensive than traditional policies, but are easier to get. Consumers with significant medical problems that would otherwise be declined coverage are usually attracted to guaranteed issue products.

Graded Benefits

A number of guaranteed issue life insurance contracts contain provisions allowing for a graded benefit during the first several years of coverage. A graded benefit policy is one that pays a lower amount if death occurs during the first few years after the policy is purchased. Only after coverage has been in effect for several years is the death benefit increased to the actual stated face amount. This is a technique used by life insurance companies to reduce the cost of policies for less healthy individuals who are already seeking guaranteed issue coverage. Graded benefits reduce the risk taken on by insurance companies who accept applications from terminally ill consumers.


Graded benefit whole life insurance is usually purchased as a last resort by people with serious health problems who cannot obtain coverage through traditional means. These policies tend to be very expensive compared to traditional policies.

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About the Author

Gregory Gambone is senior vice president of a small New Jersey insurance brokerage. His expertise is insurance and employee benefits. He has been writing since 1997. Gambone released his first book, "Financial Planning Basics," in 2007 and continues to work on his next industry publication. He earned a Bachelor of Science in psychology from Fairleigh Dickinson University.

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