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Graded Benefit Life Insurance Definition

What is a Graded Death Benefit in Life Insurance Policies?

This type of life insurance policy provides you with coverage with no physical examination required, but are intended mainly for high risk individuals or senior citizens looking to have insurance that can pay for their final expenses – burial and funeral costs.

Guaranteed issue life insurance policies usually have a graded death benefit, which means they do not pay out the full death benefit amount should the insured person die within the first two years of being insured.

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Basic Features of Graded Benefit Policies


  • The full life insurance death benefit is not paid out if insured dies in the first 2-3 years of coverage.  If the insured unexpectedly passes away within the first two years of being insured, your beneficiaries will receive a tax-free benefit, but not for the full death benefit amount. 
  • If death of the insured occurs during the waiting period (2 or 3 years) the death benefit is either graded – or a percentage of the death benefit, or the beneficiary receives a full return of all premiums paid plus interest.
  • Rates are higher for graded benefit policies compared to those for a standard life insurance plan. The higher rate is due to a graded policy being available to high-risk individuals, with shorter life expectancies. However, the rates on your policy are guaranteed for the rest of your life, and the policy will build up some cash value over time.
  • There are some health questions asked for simplified life plans, but no health related questions for guaranteed issue plans. It is important to understand, your acceptance is not guaranteed (unless you choose a more expensive guaranteed life insurance option); however, most people who apply for a graded policy will likely qualify for coverage. Even people who have  had cancer, a heart attack, or a stroke, may qualify for coverage. Every insurance carrier has their own set of health questions they ask and guidelines for approval regarding graded benefit life insurance policies.


Whole Life Graded Death Benefit Coverage


A graded death benefit policy is a whole (permanent)  life insurance policy with a waiting period of 2-3 years before the full (100%) death benefits are available. 

Usually, this type of life insurance plan may be a good  option for anyone who cannot get approved for standard life insurance. 

With graded life insurance there is no doctor’s examination required. 

And, if you have been turned down by other life insurers, you can still get coverage through a graded benefit plan that offers guaranteed acceptance.


Key Features of Graded Benefit Life Insurance Plans


  • Guaranteed Issue has lower amounts of life insurance available – usually up to a maximum of $25,000 of coverage.
  • Guaranteed Issue is more expensive than traditional policies.
  • Both Simplified Issue and Guaranteed Issue plans have graded benefit waiting periods of 2 or 3 years, usually.
  • Simplified Issue requires you to pass the health questions.
  • Guaranteed Issue has no health questions asked.


What is a 2 Year Graded Death Benefit?

The definition of the graded death benefit is the waiting period imposed on all guaranteed issue life insurance policies that restrict the payout within the first 2 years of being insured by the policy. 

What this means is if you (the insured person) passes away during the graded period (first 2 years of coverage) from natural causes, the insurance company will not pay the full death benefit to the beneficiary of your insurance policy.

In a graded benefit life insurance policy, the death benefits are not level. The beneficiary will be paid all of the premiums paid plus 10% interest on those premiums if the insured person dies within the first 2 years of being insured. If the insured dies after being insured for 2 years, the beneficiary receives the full death benefit.


Life Insurance Quotes


Top Pick – Mutual of Omaha

Mutual of Omaha offers guaranteed acceptance whole life insurance for people age 45 to 85. Choose $2,000 up to $25,000 of coverage. Rates start as low as $8.84 per month. There’s no medical exam and no health questions. You cannot be turned down. You can get a quote and apply online now. START HERE to get a FREE Quote.


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Graded Benefit Life Insurance Definition

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