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When buying a life insurance policy, your coverage is activated as soon as you’re approved and you pay the first premium. Even if you were to die the day after sending in the payment, the life insurance company pays the full death benefit to your beneficiaries. In most cases, that is.

Be aware, however, if you have life insurance with a graded death benefit. With a graded death benefit, your beneficiaries may only end up with partial benefits depending on when you purchased the policy.

What is a graded death benefit?

If you buy a life insurance policy with a graded death benefit and die within two years of buying it, your beneficiaries will only receive the total amount of premiums you’ve paid plus interest.

An exception to this is if you die as a result of an accident. Accidental deaths will qualify for the full death benefit amount.

Once the two-year time limit has passed, your beneficiaries will receive the full death benefit amount no matter your cause of death.

If you buy a policy with a graded death benefit and die within the first two years, your beneficiaries will only receive the total amount of premiums you’ve paid plus interest.

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What life insurance policies have a graded death benefit?

Guaranteed issue life insurance plans typically have graded death benefits. These plans may also be referred to as final expense life insurance and guaranteed acceptance life insurance.

There are pros and cons to these types of life insurance policies. The main benefit of these policies is that even people in poor health can obtain coverage to protect their family’s finances. It allows you to leave a small amount of money so your family can cover your end-of-life expenses, like funeral costs or medical bills.

The disadvantages of these policies are the graded death benefit and the premiums relative to the coverage they provide. Guaranteed issue life insurance can be very expensive and the coverage options often max out at $25,000.

Monthly Quotes for a Guaranteed Issue Life Insurance Policy
Death Benefit Male,
Age 60
Age 70
Age 80
$5,000 $32.40 $50.05 $124.12
$10,000 $63.89 $99.18 $247.32
$15,000 $95.38 $148.32 $370.52
$20,000 $126.87 $197.45 $493.72
$25,000 $158.36 $246.59 $616.92

These policies are so costly because the insurance company doesn’t have any knowledge whatsoever on your health status. They’re taking a risk insuring you. The high premiums are a level of protection for the insurance company.

The graded death benefit on these policies is another level of protection. If terminally ill people purchased these policies, the insurance company would constantly be paying out thousands of dollars. The graded death benefit protects the financial stability of the insurance company. Financial stability is vital to ensure the insurance company can pay out death benefits to clients as promised.

Standard term life insurance and permanent life insurance policies that require medical information do not have graded death benefits. These life insurance policies pay out the full death benefit regardless of when you pass away, exceptions being death by suicide during the first two years and fraud.

Is a life insurance graded death benefit plan right for me?

First, find out if you’re eligible for a standard life insurance policy. A standard life insurance policy is much more affordable than a guaranteed issue life insurance policy.

Be sure to apply through a life insurance broker when determining if you’re eligible for a standard policy. A life insurance broker has access to many different life insurance companies and, therefore, your odds of finding coverage are higher.

Interested? Head on over to our life insurance quoting tool to get free estimated pricing. You can apply online in just a few minutes. As a life insurance broker, your Quotacy agent is your advocate and will work hard to find you a life insurance policy for your unique profile.

If you have already tried applying for life insurance through a broker and have been denied, a guaranteed issue life insurance policy may be the next step. Quotacy can help. We work with a few life insurance companies that offer these plans. Contact us directly and we can help you get life insurance coverage to protect your family.

Note: Life insurance quotes used in this article accurate as of November 22, 2021. These are only estimates and your life insurance costs may be higher or lower.


About the writer

Headshot of Natasha Cornelius, a life insurance writer, for Quotacy, Inc.

Natasha Cornelius

Marketing Content Manager

Natasha is a writer and content editor at Quotacy. She is also co-host of Quotacy’s YouTube series. She can't get enough of life insurance and outside of work is also working toward her Chartered Life Underwriter designation. Connect with her on LinkedIn.