Modified whole life insurance is a permanent life coverage policy where premiums rise after a certain time. This insurance requires policyholders to pay lesser premiums than they would for a certain level of insurance premium policy for the first few years and then pay higher premiums later. These coverage premiums, unlike whole life insurance premiums, do not stay the same throughout a policy.
Modified whole life insurance is often said to offer lifetime insurance coverage at a low premium. This makes it the best option for policyholders who want permanent life insurance. This insurance’s low premiums last for two to three years before they rise. However, these low premiums can last up to 10 years, while higher premiums would last your whole life.
While this whole life insurance looks appealing, it may not be the best option for most people due to its cost and complex policy options. Before getting a modified life insurance policy, you need to be familiar with how it works and every other piece of information you need to get.
How Does Modified Whole Life Insurance Work
Modified whole life insurance works akin to the standard whole life insurance coverage. This life insurance offers a cash-value savings account added to the death benefits. Each time you pay your premium, part of it goes into the cost of maintenance of your policy, while the other is added to your cash value. Most modified life insurance policies do not allow policyholders to contribute to their cash value account in the introductory period.
Differences Between Standard Whole Life and Modified Whole Life Insurance
One prime difference between standard whole life insurance and modified whole life insurance is how much their premiums cost and how the policy’s cash value is paid. Standard life insurance has the same premiums throughout the policy life, while modified life insurance premiums increase after a certain period. While there are small differences between these two, they can both work well with your finances. You may not lose much cash value in two years, but if you have a longer introductory period, it can add to your cash value growth.
How Much Does Modified Whole Life Insurance Cost
Depending on some factors considered by the insurance company, your insurance cost is determined. A 30-year-old female who doesn’t have complex health insurance may be charged $408 monthly on a $500,000 whole life insurance policy. Policyholders may also be able to pay less than this during the first few years of a modified whole insurance policy. However, you will be required to pay more later on as the years go by. This is because the lower rates you are required to pay for the start are not discounts. Furthermore, you will need to make up the difference with higher payments at the end of the introductory time.
Should I Get a Modified Whole Life Insurance
Getting a modified whole life insurance premium policy is a good way to get lifetime insurance coverage. But before you proceed with it, you need to consider if you would be able to afford the premium and if you need it. Most times, people do not need this insurance but proceed to get it and get stuck on premiums. Purchasing this life insurance means you are:
- Missing out on cash value savings, which is one of the whole life insurance policies.
- Pledging to increased premiums after a few years, whether or not you can afford them.
- Paying more on insurance coverage than you would for a standard-term life insurance.
In cases where you cannot pay your premiums when they rise, your insurance policy will lapse, and you will be responsible for high surrender fees. Aside from this, your family will miss out on your policy financial protection. For these reasons, you need to confirm if you need this insurance and check if it fits into your budget.
Modified whole life insurance advantages and disadvantages
While contemplating whether to get a modified life insurance policy or not, you need to check out the advantages and disadvantages. This helps you figure out if it is a good idea for your budget or not. Doing this can have a good effect on your finances and ensure long-term insurance coverage. However, a few of the benefits and drawbacks of this policy include:
Advantages
- Lifelong coverage.
- Deferred taxes.
- Lower initial premiums.
- Cash value accumulation.
- Potential dividends.
Disadvantages
- Rising premiums.
- Limited flexibility.
- Higher long-term cost.
- Potential for lapse.
Having an extensive evaluation of the advantages and disadvantages of modified life insurance ensures that your life insurance decision correlates with your current and future finances.
Major Benefits of Modified Whole Life Insurance
Modified whole life insurance makes it possible for policyholders to gain access to ownership. This helps to provide minimal rates for the first few years. However, you should be ready for premiums to go up and must be willing to precede some possibility to enhance cash value. Furthermore, you should consult your insurance agent to help you get suitable coverage with affordable premiums.