Many people prefer whole life insurance policies because it serves two purposes – life insurance and investment. Whole life insurance is a subcategory of permanent insurance. A whole life insurance policy is one can keep for as long as you live and that will pay the face amount to your beneficiaries. It has a level premium and the premium is locked in when you buy the policy. Whole life insurance policies have a cash value which builds up with time and adds to the death benefit. You can also withdraw cash from this cash value but the death benefit will decrease. The investment feature coupled with the life long protection makes it an attractive option. But on average the premium for a whole life policy is higher than a term life policy. Some people therefore choose term life insurance although they prefer whole life insurance. If you are facing a similar problem, relax. There is an alternative. It is called a graded premium life insurance policy. The graded premium life insurance policy is sometimes referred to as graduated premium life insurance.
Graded premium life insurance policy is a less known life insurance policy. It is a type of whole life insurance. It starts out with a lower than usual premium which increases every year for a certain number of years and then levels off and remains level for as long as you own the policy. This is a perfect alternative if you want to own a whole life insurance policy but you are unable to afford the full premium initially. A graded premium life insurance policy has a level death benefit for as long as it remains in force. This can be distributed in a lump sum or in the form of an income. It begins with a lower than usual premium. It is actually much lower than the premium for whole life insurance. The premium increases usually for 5 or 10 years. After the premium levels off, it remains level for as long as you own your policy. You can borrow up to approximately 80% of the cash value without loosing your life insurance coverage. The policy may even earn a dividend but dividends are not guaranteed.
On the downside, a graded premium life insurance policy has low premium initially but when it levels off, it is usually higher than that of a regular whole life policy. You may end up paying much more in the long run. Since the premium is low initially, the cash value will also grow much more slowly initially.
