What Is Modified Life Insurance? 3 Advantages And Disadvantages

It’s good that you ask what is modified life insurance. Well, this is a standard life insurance policy in which premiums are adjusted so that the first three up to five years, the premium payments would be lower.

Then, the premiums will be higher in the subsequent years. In essence, this provides an alternative structure of premium payment. Do you want to know more about this? Just keep reading as we will be providing relevant information about modified life insurance.

what is modified life insurance


What Characterizes A Modified Life Insurance?

The premiums that are changing over time is the one that characterizes modified life insurance. Change in the premium payment usually occurs after 5-10 years from purchasing the policy.

Although the premiums are not level anymore, the death benefit coverage does not change. Therefore, once the premium has increased already, it will be consistent throughout the remaining terms of the policy.

This contrasts the level or traditional life insurance policies wherein premiums would stay the same throughout its terms. Once the lower premium period expired, the payments of a modified life insurance policy would be typically higher than a traditional insurance plan.


Whole Life VS. Term Insurance Policies

What is modified life insurance? A modified life insurance policy is one of the permanent life insurance types. It can either be whole life or a term insurance policy. A term policy would last for a particular time before it expires, while a whole life policy would last for the insured person’s entire life.

The latter usually includes a saving account or its cash value component which is gradually growing over time. This is also the most common kind of modified life insurance.

It works the same as those traditional policies, except for its schedule of premium payments. Since it is building a cash value, the policyholder will borrow against it like a loan. You may also withdraw an amount up to the difference between the cash value and surrender fees.


3 Advantages Of Modified Whole Life Insurance

A lot of people would prefer to get modified whole life insurance because it comes with various advantages. We will be discussing them below.


#1. Lower premiums at the start

It is appealing to get modified life insurance because the premium payments are lower at the start of the policy. This is suitable for people who cannot get better coverage and those who expect to have a higher income in the later years. Learn more about what life insurance premium is to understand.


#2. Permanent coverage

The death benefits offered by a modified whole life insurance policy do not expire for as long as you are paying for the premiums, unlike in a term life insurance that only lasts for a specific period, commonly about 30, 20, or 10 years.


#3. The same face value

Even if the premium payments are low initially, their face value will stay the same throughout the entire policy. In other words, the death benefit paid to your beneficiaries in case you die will always be the same despite the payments made for the coverage.


3 Disadvantages Of Modified Whole Life Insurance

It seems affordable to get modified life insurance, but it comes with disadvantages. So you should understand this first before you make a decision.


#1. Complex

The majority of policies in modified life insurance are whole life plans, and this type of policy can be more complex than traditional life insurance policies. This may include fees as well as other costs.


#2. Accumulated cash value will be lower

Since the premium payments made in the early years are lower, its cash value component will accumulate more slowly than that in a whole life insurance policy with a level payment schedule.


#3. It gets more expensive in the long run

Even if the premiums are cheaper at the start, a modified whole life insurance policy will typically lead to more expenses. That is because you will have to pay more premiums to your insurance provider once the lower premium expires.

Most often than not, a whole life insurance policy is relatively more expensive as compared to a term life insurance policy. This is true even though the premium payments made at the beginning are lower.


Is Modified Life Insurance The Right Policy For You?

This type of insurance policy is usually offered to younger people. They give them a plan for obtaining permanent coverage in which they can afford. Modified life insurance is devised for people who do not have the capability to afford the regular premiums of whole life insurance but think that they can in the future.

For your information, a whole life insurance policy is among the pricey types of policies which is why it sounds appealing to initially pay lower for coverage that will last a lifetime.

It’s A Wrap!

Thank you for staying until the end of this post about what is modified life insurance. Take note that whole life insurance is generally more expensive as compared to traditional life insurance policies. Despite the modified premium payment schedule, its overall cost is still higher.

Regardless, some people would borrow money against their insurance policy if accidents happen or your car needs fixing, so learn how to fix a water-damaged car to avoid borrowing money. That is all.

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