Summary: There are partial coverage plans which pay a portion or all of the death benefit within the first two years. However, plans that pay 100% of the benefit immediately after the death are over will also be available.
The main differences between whole modified life and traditional whole life insurance are:
A modified plan is just a type of final expense insurance.
Remember that for any policy from any company where there are no health questions, there will always be a 2-3 year waiting period.
Your premiums start to fund your cash-value account immediately with whole-life insurance. For most modified whole-life policies, however, you will need to wait until your premiums increase.
The good thing about a whole-life modified policy is that people with severe health conditions can obtain new coverage. Modified life plans usually have little or no medical/lifestyle insurance. You can still get new coverage even if your condition is severe. Depending on your current health condition, you may need to modify your whole life.
An example: If you receive 10% interest from a company and make $1000 monthly payments, you get $1100 back.
For modified premium whole life, some companies have a 2-year waiting period, and some make you wait three years.
A quick recap: There are two types of partial coverage plans. One pays a portion of your death benefit for the first two years, and another pays 100% immediately.
If you are looking for immediate coverage, you will need to answer some health questions. There are no exceptions.
The company can grant different interest rates. You must note that the interest granted depends on the premiums paid and not the death benefit.
You can rejoice to know that you have the option of a modified plan, no matter your health situation.
Understanding that not all companies are the best for you is essential.
Prices can't increase over time. Coverage can't ever decrease; Policy can't expire at any age.
Cash value: Your premiums begin to fund your cash value account immediately with whole life insurance, but for most modified whole life policies, you will need to wait until your premiums go up.
Some modified whole-life policies won't let you contribute to your Policy cash value during the initial period.
Modified whole life insurance offers lower premiums for a short time (usually two to three years but occasionally up to five or 10), followed by a higher rate for the remainder of the Policy. The initial savings may be tempting, but it's not the best life insurance policy for most people because of the high premiums and complicated policy options.
The interest granted varies by the company as well. It's important to note the interest granted is based on the premiums you've made, not the death benefit.
XYZ insurance doesn't seem to like people with diabetes. They might refuse to cover them or charge them higher prices.
For example, ABC insurance company excels at ensuring people with diabetes and offers them rock bottom rates. Their underwriting is set up to work that way.
You might also see modified whole-life plans referred to by some companies as "final cost life insurance", "funeral insurance", "burial insurance", or "funeral insurance".
Besides the premium payment schedule, modified whole life policies function similarly to traditional whole life policies. Modified whole life insurance builds cash value you can borrow against like a loan. You can also withdraw money from the cash value — minus any surrender fees.
Modified whole life insurance is permanent life insurance in which premiums increase after a specific period. Usually, the premiums increase after five or ten years but remain constant. Traditional whole-life insurance premiums, in contrast, remain the same throughout the policy's life.