Modified Premium Term Insurance

What is Modified Premium Term Life Insurance Coverage?

It’s a type of temporary life insurance plan that provides premiums that change over time, usually in 5 or 10 year intervals. 

Some modified premium plans provide term insurance up to age 90, with changing (modified) premiums every five-year period.

This may be referred to as an age-based pricing model of adjusting premiums that increase each five-year period. 

For Example: You may pay $15 dollars per month for your term life policy the first five years, then the premium may increase to $16.50 then next five-year period.

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The "modified" part of modified term life insurance policies refers to the alternative payment structure of such coverage. It changes over time, instead of paying a level premium each year for the entire life of your term insurance policy.

Modified term life offers the same protection that a standard term life policy would, but with several different payment options, instead of level premiums. 

Premiums may start out lower than those of a standard term insurance policy and gradually increase over the policy's term (duration), usually changing every five or ten years.

Modified term life insurance is a combination of three types of life insurance: 

1. Life Insurance –  That covers funeral expenses and other end-of-life expenses while giving your beneficiaries financial support upon your passing, 
2. Term Insurance – That provides coverage only during the term (duration) of the policy (usually five to 20 years), and 
3. Modified Insurance – Where the premium payments usually start lower than they normally would be, and then increase over time.

So, a modified term life insurance policy would offer insurance coverage for a set amount of time, and have premium payments that either increase or decrease as time goes on.

Who Needs Modified Term Life Insurance?

Modified term life insurance is beneficial for anyone who wants a limited amount of insurance protection at a more affordable rate to start.

For example, a person may only want to be covered until their child reaches age eighteen, or maybe until the insured person is old enough to retire but can’t afford the full premium just yet. 

Another example would be a person who only wants coverage until they retire, and wants the rates to start at a full price and gradually decrease over time. 

A new graduate may want temporary coverage until they secure employment that may offer them affordable whole life insurance coverage through an employer provided group life insurance plan.

Advantages of Modified Plans

 

Modified term life insurance offers several advantages: 

It can be set up to automatically renew or even, after a set period of time, convert into a permanent life insurance policy. 

It offers an affordable way to protect your loved ones and dependents should anything happen to you. 

Most modified term policies will cover funeral, burial and other end-of-life expenses. 

The policies also give you the freedom and flexibility to choose a term length that suits your needs without being locked into a lifelong insurance contract.

 

Disadvantages of Modified Plans

 

Unlike whole life policies that offer coverage for the policy holder’s entire life, modified term insurance only offers coverage during the length of the policy term. 

That means if anything should happen to the policy holder after the term expires, there is no coverage. 

Also, unlike most whole life insurance policies, modified term life cannot be borrowed against or converted into cash assets later. Modified term does not build up any cash value inside the policy over time.

 

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