Modified Life Insurance
What Does Modified Life Insurance Mean?
Modified life insurance functions similarly to a regular life insurance policy but offers lower premiums for the first three to five years. After this initial period, the premium increases significantly, exceeding the cost of a standard life insurance policy. However, the total coverage amount remains the same, and the lower premiums in the early years are offset by the higher premiums later on.
The advantage of modified life insurance is that it is budget-friendly, making it ideal for families or individuals in the early stages of their careers. They benefit from paying lower premiums initially, with the ability to afford higher premiums as their income grows.
Modified life insurance is also known as modified whole life insurance.
Insuranceopedia Explains Modified Life Insurance
Modified life insurance is appealing to individuals who expect to have more funds available soon. For instance, someone just starting their career might anticipate promotions or raises by the time the premium increases. This allows them to access higher insurance coverage than they could afford at that time. However, during the introductory phase, no cash value or additional benefits typically associated with a whole life policy are accumulated. If the policy is canceled during this period, the insured will not receive any cash value for premiums paid.
For example, a $1 million modified whole life insurance policy might initially cost a low premium of $1,000 per year. After five years, the premium could increase to $10,000 per year, at which point cash value starts accumulating like a regular life insurance policy.
Modified life insurance is also attractive to those who want to focus on managing major expenses in the short term, such as paying off a car, mortgage, or student loan. The lower premiums in the initial stage free up more funds for other expenses.
Aside from the significantly lower premiums during the introductory period, modified life insurance policies function like regular whole life insurance policies. However, some advanced or niche features may not be available with a modified life insurance policy.
