What Is Modified Life Insurance: Why This Flexible Policy Is So Popular
65% of Americans don’t have life insurance coverage because of expensive premiums. If you’re struggling to find insurance premiums that suit your budget, modified life insurance could be right for you. Here’s what you need to know.
Modified Life Insurance Defined
Modified life insurance is a policy that charges lower premiums for the first five to ten years. After this period, the premium costs increase. The face value of a modified policy remains consistent throughout the lifespan of the contract.
Modified vs Traditional Insurance
Modified contracts serve virtually the same purpose as a traditional policy. An individual might buy a modified policy to finance end-of-life expenses, cover debts, provide an income stream for their loved ones, or plan their estate. Modified policies also have a cash value component.
What differentiates modified policies from traditional ones is how much you pay in premiums. On a conventional policy, premiums remain the same throughout the contract. With a modified policy, you pay lower premiums initially, then costs increase.
How Much Coverage Can You Get?
Most life insurance companies limit modified policy coverage to $500,000. This cap protects against the potential losses that come with low premiums. Typically, policyholders can apply for more coverage when their premiums increase.
Pros Of Modified Life Insurance
More than 50% of Americans won’t get life insurance if it requires a medical exam. If you’re one of these people, you can benefit from a modified policy with minimal medical underwriting. Thus, you can still get coverage even if you suffer from a chronic health issue or have a poor medical history.
Modified life insurance can also be a good idea if you don’t have enough money to pay for regular premiums. You’ll have at least five to ten years to save up for the cost of coverage.
A modified life insurance policy is also great for growing cash value. Any gains or interest accrued is tax-free.
Cons Of Modified Life Insurance
A modified policy’s biggest drawback is the two to three-year waiting period before the policy pays out. If you die within this period, your insurer might withhold your death benefit or only release a portion of the payout.
Another drawback is that premiums don’t stay level throughout the life of the policy. Companies take more significant risks to insure older applicants who have poorer health. To ensure that they are getting their money’s worth, insurers increase premiums significantly after the five to ten-year low-premium period.
Finally, it can take decades to build cash value on a modified policy. If you’re an older applicant, you may not have enough time to grow savings for your retirement.
Modified life insurance policies are ideal for applicants who want flexible payment terms and a cash value component. If you aren’t ready to make a big financial commitment, modified life insurance may be the best option for protecting your loved ones while retaining some flexibility.
For more information about modified policies and other life insurance options, get in touch with Wesley Insurance, LLC. Inquire with our consultants today to find out how you can secure a flexible plan.