Affordable Modified Whole Life Insurance Policies
Do you need a life insurance policy but financially you are not strong enough to afford it? Well! There is a type of insurance policy that is affordable and offers the coverage you need, and that is Modified Whole Life Insurance.
It would be a great choice for you if you want to assist your family financially in case of your sudden death without breaking the bank. It is a type of whole-life insurance that comes with a lower premium at the start. But with time it can be more expensive in the long run so it’s better to know its limitations before buying it. In this blog post, we will explore what is modified whole life insurance, how it works, and whether it is right for you. Let’s explore together!
What is Modified Whole Life Insurance?
A type of whole life insurance that provides lower premiums for a short period but is followed by a higher one for the remaining policy. The lower premiums usually last for two to three years or maybe up to 10 years, but higher ones will be for the rest of your life.
Because of initial savings due to lower premiums, it seems appealing but it’s not the best one for most applicants due to overall high premiums and complicated options. However, it would help you to get a higher death benefit sooner instead of buying a policy being older. During the initial period, the policyholder is not allowed to contribute to the policy’s cash value.
How much does modified whole life insurance cost?
The lower premium at the start of the policy is not a discount but you have to make up the difference with higher premiums after the initial period. On average, a 35-year-old male without any extreme health issues would pay $517 a month for a $500,000 modified whole life insurance.
As mentioned earlier, for the first few years you may have to pay less, but be prepared for paying more than that for the rest of the policy. However, if you compare this cost with term life insurance, the same person will pay $30.81 a month for a $500,000, 20-year term plan.
How is modified whole life insurance different from standard one?
Modified whole life insurance is a type of whole life insurance but there are two major differences between them. These are:
Traditional whole life insurance offers the same premium for the entire plan, whereas a modified insurance policy’s premium changes with time.
The Cash Value
For modified whole insurance policies, your cash value will not be available until your premiums go high. On the other hand, your premiums will fund your cash value account right after paying the premiums.
Meanwhile, the differences are not too big, they have a huge impact on your financial condition. You may not lose much on cash value growth over 2 years, but it can set you back if the initial period is too long.
Benefits and Drawbacks of Modified Whole Life Insurance
Modified whole life insurance could be the best option for those who have a chance of an increase in their income in the coming years. As it comes with both benefits and drawbacks, consider them before signing the policy.
Benefits of Modified Whole Life Insurance
- The policy has various main benefits that make it appealing to applicants. Some of the advantages are:
- Minimum Up-Front Costs: The policy has lower premiums for the first few years. So it would be ideal for those who expect a good increase in their income.
- Least Underwriting: Most insurance companies have a limited medical underwriting process or maybe not at all to approve them for a modified insurance policy. So if you have some serious health issues that inhibit you from getting standard plans, you can find this policy easy to buy.
- Uniform Value: Regardless of minimum initial premiums, the death benefit would not change during the duration of the modified whole insurance policy.
- Lifelong Coverage: It provides coverage for the whole lifetime of the policyholder. So you would be satisfied that your beneficiaries are no longer financially unprepared after your death.
Drawbacks of Modified Whole Life Insurance
Along with several benefits, the policy also has various disadvantages you want to explore before buying it.
- Complex Plan: Contracts and their terms and conditions for modified insurance plans would be complex as compared to standard plans because the policy uses an alternative premium payment structure.
- Waiting Periods: Typical whole life insurance plans have a 2 – 3 years waiting period after which the insurer will pay death benefit for a non-accidental death of the policyholder. However, if the insured dies during this period, the company will refund the paid premiums along with interest at a predetermined rate. Once the waiting period is over, the full death benefit is payable upon the death, regardless of the reason.
- Delayed Cash Value Accumulation: As modified life plans have lower upfront costs, the cash value may not accumulate unless the premiums increase. However, whole life insurance policies have a cash value component from the start of the policy.
- Overall Expensive: At the beginning, modified plans seem to be reasonable as compared to standard ones, but the abrupt increase in premiums can make them more expensive.
Is the Modified Whole Life Insurance policy right for me?
If you want to buy an insurance plan, but can’t afford the high premiums of a permanent life insurance policy, you can go for a modified whole life plan. You may get bound in the rates while you are young, but you do not have to pay high premiums when you are older and established.
Who should buy a modified whole life insurance plan?
It is not recommended to get a modified whole life insurance plan. Standard life insurance is already more expensive and complex than you think. If you get a modified plan, you are committed to higher premiums for the long run, whether you can afford them or not. That’s not the only condition you have to face, as you also lose out on cash value savings, one of the main perks of standard policy while paying much more coverage than term life insurance.
If you cannot make your premiums payable when they increase, your plan will lapse and you are responsible for high surrender fees. Furthermore, your beneficiary will lose out on financial protection.
However, if you are still considering going for a modified whole-life policy, review your budget and income source thoroughly. You can also consult a financial advisor to ensure that it’s the best choice for you or not according to your financial condition.
The Last Word
Getting a modified whole life insurance plan would only be the best idea when you can’t afford high premiums and there is an expectation of an increase in your income source. When you get this plan, you are bound to pay high premiums for the rest of your life except for a few years of policy start-up.
Moreover, you can also consult some professionals and discuss your financial situation with them. They will give you the best possible advice.