What is a Graded Death Benefit?

Written by Jeff Root

Securing life insurance to help your loved ones with any expenses related to your death is a very smart choice. Yet it may seem too good to be true to receive a guaranteed life insurance policy without any medical questions whatsoever.

So naturally, there is a catch.

For guaranteed issue life insurance, there is a mandatory waiting period on the death benefit. This is known as the “graded period” and it affects the amount of payout to your beneficiaries. Every company that offers life insurance without underwriting (health questions and/or medical exams) have limited payout options during the first few policy years. For the majority of insurers, this graded period is in the form of a two-year waiting period, yet some are as long as three years.

What is a graded death benefit in guaranteed life insuranceBefore diving into the details of the graded death benefit, including policies for guaranteed life insurance carriers, let’s be clear about the definition and why it exists.

What Does Graded Death Benefit Mean?

The definition of the graded death benefit is the waiting period imposed on all guaranteed issue life insurance policies that restrict the payout within the first 2-3 years.

This restriction is on all deaths due to natural causes.

Meaning, if you pass away during the graded period from natural causes, the insurance carriers will not pay the death benefit to your beneficiary.

Why Do Life Insurance Carriers Have the Graded Period?

We believe it’s important for people to know why life insurance policies are designed the way they are. This is the only way for you to make an educated purchase that you can feel good about and have confidence in.

So here’s the truth…

Insurance companies operate in the business of risk. With guaranteed issue life insurance policies, they are inherently opening themselves to financial loss to high-risk customers. These are people who have been declined or are not eligible for other types of life insurance products and have turned to guaranteed issue as a last resort.

The graded period protects carriers from issuing policies to people that have a higher chance of dying during the first 24-36 months. These are people with critical medical conditions like terminal cancer, congestive heart failure, AIDS, and a dozen or so more. Promising to pay upwards of $25,000 to these people if they were to die one week after purchasing their policy is simply bad business.

So to cover themselves while also still offering an insurance product to those deemed “uninsurable,” they instill the graded period.

What if Death Occurs During the Graded Period?

Fortunately, your beneficiary will still receive some money if you pass away during the graded period.

If death occurs from natural causes* in the first two years, the company will refund the premiums that had been paid toward the policy so far. On top of this, they’ll also include an extra interest payout. This interest is usually around 10% but is available as high as 30%.

This means, your loved one will receive 110% of the money you spent on the policy since it’s purchase.

Let’s give an example:

You purchase your policy on January 1, 2018 and die from a heart attack on July 18, 2018. You have paid $560 into the policy so far. Since you passed away from natural causes within the first 24 months, your beneficiaries will receive $560 + .10(560) = $616.

Although it may not seem like a lot of money. The truth is, where else can you earn 10% back on your money in today’s markets? Nowhere that we know of.

Death Due To Suicide During The Graded Death Benefit Period

Before we move on to address the one exception to the graded period, we need to discuss the topic of suicide. If death occurs because of suicide during the graded period, ONLY the premiums will be refunded. There will not be an additional interest payout on top.

No matter what, we understand that the 2-year graded period is not ideal in a policy. But if guaranteed issue is all you can qualify for or afford, it is the reality and it’s best to begin working through it as quickly as possible.

Keep in mind that there is an upside! After the probationary period is over, you will be 100% protected no matter the condition of your health or what age you live until. At this time, it will no longer matter what the causation of death is, whether it’s natural or accidental. After the graded period is complete, your loved ones are guaranteed the entire policy amount.

The Exception to The Graded Death Benefit

Remember how we said the graded period affects the payout for deaths caused by natural causes?

Well, insurance carriers do understand that genuine accidents are unforeseeable and out of anyone’s control. They can happen to anyone, anytime. Because of this, it does not make sense to put a time limitation or graded period on accidents.

This means, if death occurs by an accident during the graded period, the full death benefit will be paid. The same rule applies after the graded period is over too.

You should also know that even if you cause the accident (such as you causing a car accident), the policy payout will still be guaranteed. In order for the payment to be processed for an accident, carriers usually require proof such as a police report and a certificate of death. This paperwork process could delay payment by a short amount of time to the beneficiary but will pay the full amount.

Graded Death Benefit Years & Coverage by Life Insurance Carrier

Currently, there are at least 15 major insurance carriers offering guaranteed whole life insurance with no medical underwriting or medical questions. As a shopper, it may appear overwhelming at first, but actually selecting a guaranteed issue plan is much simpler than most other plan types.

There really is not much variety in options. The three major differences amongst all plans are price, age availability and graded benefits. Some plans do offer additional riders and benefits, which are outlined in each of their respective pages.

Click the company name below to see our review of that company’s guaranteed issue life insurance policy.

Graded Benefit & Interest Payment By Company

Note: This chart is intended to give a helpful overview of JUST the graded period and interest returned. We do not suggest choosing your plan based on this information alone. As we explore on this website, not all carriers are created equally and pricing does vary. Do your research on each carrier or contact us so we can help.

Life Insurance CarrierGraded PeriodInterest on Premiums
AIG Guaranteed Issue Life Insurance24 months10%
Gerber Guaranteed Issue Life Insurance24 months10%
Great Western Guaranteed Issue Life Insurance
24 months10%
AAA Guaranteed Issue Life Insurance24 months30%
Colonial Penn Guaranteed Issue Life Insurance24 months7%
Mass Mutual Guaranteed Issue Life Insurance24 months10%
Americo Guaranteed Issue Life Insurance36 months (24 in IL, NH, NJ and WV)5% year one
10% year two
Mutual of Omaha Guaranteed Issue Life Insurance24 months20%
NCE Guaranteed Issue Life Insurance24 months20%
Physicians Mutual Guaranteed Issue Life Insurance24 months7%
AARP Guaranteed Issue Life Insurance24 months25%
Vantis Guaranteed Issue Life Insurance24 monthsn/a
Kemper Guaranteed Issue Life Insurance24 months20%
United Home Life Guaranteed Issue Life Insurance36 months6% year one
12% year two
18% year three
Columbian Guaranteed Issue Life Insurance36 months6%

Common Myths About the Graded Death Benefit

You may notice that as you shop online and begin educating yourself on the intricacies of life insurance that some articles are confusing.

You’ll find articles on other websites that allude to the fact that guaranteed issue policies “might not” actually pay out the death benefit within the first 24 months if the cause of death is natural (aka not an accident). The “might not” wording of this incorrectly gives shoppers false hope that they’ll be the exception to the graded period and then purchase something without really knowing the facts.

Here’s the real truth:

Guaranteed acceptance insurance policies do not have any grey area, flexibility or contestability. They are straight forward…black and white. If you pass away within the first two to three years (depending on the carrier) from anything other than an accident, you will certainly NOT receive the full policy amount.

As an intelligent shopper, it’s so important for you to know what you’re buying and how to best protect your family. This is exactly why we’re here! To be 100% transparent and fact-based. Trust us when we say that it will only cause more of a headache down the line when someone purchases a policy that’s not right for them. So when you work with us, you’ll get it right the very first time.

Find The Right Guaranteed Life Insurance Policy for You

Selecting the right guaranteed issue life insurance policy usually comes down to the monthly premium and your budget. That said, you may also feel that length of the graded period is important for your individual circumstances.

In order to compare your options taking both price and graded benefit period into consideration, we suggest speaking to an independent agent. This is hands down the most efficient and convenient way to shop for life insurance, especially when it’s easy to get hung up on smaller details like graded benefits.

An independent agent can shop across a dozen or more carriers on your behalf and help answer any questions you may have.

You can also quickly compare rates across all carriers by using the free quote tool on this page.

Advice on Graded Death Benefits & Life Insurance

Our team of agents has years of experience working with guaranteed issue clients and fully understand how the graded death benefit varies across carriers. We would value the opportunity to answer any questions you may have and to see if a guaranteed acceptance product is right for you.

Additionally, our team can quickly and easily help with an application over the phone in under 20 minutes and at no cost to you. Give us a call today at 949-480-9638 and let us earn your business through our years of experience and high-quality customer service!

About Jeff Root & Guaranteed Issue Life
About Jeff Root & Guaranteed Issue Life

Jeff Root is the author of The Digital Life Insurance Agent and host of the Modern Life Insurance Selling Podcast.

Guaranteed Issue Life is a nationally licensed agency, that has helped over 1500 consumers purchase guaranteed issue life insurance. We represent over 30 life insurance companies & transact business in every state.

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