What is modified whole life insurance?

modified whole life insurance

What Exactly Is Modified Life Insurance, and Should You Get It?

Modified life insurance, also known as modified whole life insurance, is a type of permanent life insurance that provides a lower premium for the first few policy years in exchange for a higher premium after the introductory period. The spirit of this type of life insurance is affordability. The target market consists of families with breadwinners who are in the early stages of their careers but anticipate a significant pay increase shortly. This product may also be beneficial to someone who has other financial obligations and plans to retire in a few years.

What to Expect When Purchasing a Modified Life Insurance Policy

The most important thing to understand about modified life insurance is that the premium will rise after a few years. This increase will almost certainly be significant. The good news is that most modified life policies only have one premium increase. This means that the policy owner will not have to make continuously increasing premium payments for the duration of the policy’s ownership.

An example of a modified life policy could be as follows:

Assume you want to purchase $1 million in life insurance. You like the concept of a cash value policy, but the premiums quoted for $1 million in whole life or universal life insurance are out of your price range. You are confident that you will be able to afford such a policy in a few years, but not right now. Your agent advises you to purchase a modified whole life policy. You’ll have a $1 million death benefit under this arrangement, but you’ll pay a much lower premium than you would for regular whole life insurance. However, after five years, the premium will be higher than the original whole life quote you looked at. Numerically, this might look like this:

Pay a $650 annual premium for five years, then a $9,000 annual premium for the rest of your life.

Modified life policies typically do not accumulate cash value while in the lower or “modified” premium stage. As a result, if you cancel the policy during this time, you will not receive any cash value for the premiums you paid. However, as the policy premium rises, the policy will begin to accrue cash value. It will also typically pay dividends if it is a participating modified whole life policy. When the policy premium rises, the policy will behave similarly to a standard whole life policy.

What Is the Difference Between Whole Life and Modified Whole Life Insurance?

The main distinction between regular whole life and modified whole life is the premium increase that occurs a few years after you purchase the policy. Regular whole life insurance guarantees the same premium level in all years. After paying a lower premium for the first few years, modified whole life insurance will require you to pay a higher premium at some point in the future.

Everything else about the two types of life insurance is fundamentally the same. They both pay a death benefit and have the same tax advantages as life insurance contracts. When it comes to more advanced design aspects, modified whole life and regular whole life will generally differ. A modified whole life policy lacks many of the features that help a whole life policy build faster cash value.

The Product Is Near extinction

Convertible term life insurance is driving modified life insurance out of business. Modified policies achieve the same goal as term life insurance that can be converted to whole life insurance. Furthermore, term life insurance policies with a conversion feature give the policyholder more time to convert to whole life insurance and pay a higher premium. This is due to modified policies having a very rigid scheduled premium increase that the policyholder cannot postpone. Using our previous example, the increase from $650 to $9,000 occurs after five premium payments, regardless of whether the policy owner is prepared to pay that premium. If the policyholder of a modified policy is unable to pay the increased premium, the policy must be canceled.

This is not usually the case when converting a term policy to whole life insurance. Although some term policies have a conversion window within which the policy owner must convert, you can still keep your term life policy in force and pay the term premium if you miss the deadline.


Modified life insurance is an unusual product by today’s standards, but it will provide you with a path to permanent life insurance ownership if your finances do not currently allow for such a purchase. It is not available through most major life insurers, but it is available through smaller, more niche insurers. Convertible term life insurance displaced modified term life insurance years ago and serves a similar purpose. This is the option you’ll find at major life insurance companies, but keep in mind that you’ll need to purchase a term policy from the company that issues the cash value product you ultimately want to buy, the conversion window varies by company, and there’s no guarantee that the permanent product you want will be available in a few years when you’re ready to convert your term policy.

Finally, when purchasing modified life insurance for permanent life insurance, you must prioritize the death benefit over cash value accumulation as a distant secondary goal. The features that are used to optimize the cash value accumulation of a permanent life policy are not available in modified life policies.

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