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What Is Graded Death Benefit Life Insurance?

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Graded death benefit, life insurance is a type of whole life insurance that doesn’t require a medical exam and, in many cases, no health questions. This unique life insurance option provides coverage for people struggling to qualify for traditional life insurance policies because of health issues or older age.

However, it may not always provide the most cost-effective rates or the highest amount of death benefit. In addition, these plans significantly impact how the death benefit is paid to your beneficiaries if you die early into getting your policy.

This comprehensive guide will explore how graded death benefits work, the type of applicants they serve, and what to consider regarding potential costs. Understanding the pros, cons, and trade-offs allows you to evaluate whether this unique policy option aligns with your insurance needs and financial situation.

Understanding Graded Death Benefit Life Insurance

Graded death benefit life insurance, also called “modified benefit life insurance,” provides financial protection for people who may not qualify for traditional life insurance due to health issues.

Unlike traditional life insurance, which pays the full death benefit no matter when the insured dies, graded policies limit the payout of the policy’s full value if the insured person passes away within the first few years of getting coverage.

The payout starts lower and increases gradually over a defined grading period, usually lasting two or, in some cases, three years. If you were to die during the graded period, the policy only pays a percentage of the full death benefit amount. Some graded death benefit plans will not pay any portion of the death benefit if you pass away during the graded period. However, after the grading period has ended, the policy becomes immediately eligible for full death benefit.

Graded Death Benefit Payouts

The grading period is a set waiting period that impacts how the death benefit payouts work in a graded policy. The payout can work in one of two ways:

No Payout in Years 1-2: The most common graded benefit period is that no death benefit is paid if the insured dies within the first two years of the policy. If you have heard the phrase “life insurance with a two-year waiting period, this would be it.” Instead, the beneficiary would receive a refund of premiums paid plus a small amount of interest, usually around 10% or less.

Partial Payout in Years 1-2: Some policies use a modified benefit approach where a percentage of the death benefit is paid in years 1 and 2:

  • Year 1: Typically pays 30% of the death benefit
  • Year 2: Typically pays 60% of the death benefit
  • Year 3: Typically pays the full death benefit amount

After the graded period (usually 2 years), the policy pays the full death benefit no matter when the insured dies. The grading period’s duration may vary depending on the insurance company.

Reasons for Choosing Graded Death Benefit Policies

You may be asking yourself why anyone would purchase a life insurance policy that doesn’t immediately pay the full death benefit upon death. There are a few good reasons why these plans can be beneficial and fill an important role as a life insurance option:

  • Declined for Traditional Life Insurance: Applicants with serious medical conditions are often declined for traditionally underwritten policies. Accepting a graded benefit plan can provide an alternative to obtaining coverage.
  • Avoid Medical Exams: The simplified application for graded policies does not require invasive medical exams.
  • Qualify Based on Non-Medical Criteria: Insurers evaluate graded benefit applicants based on simple “yes or no” questions about health factors, broadening eligibility.
  • Age Makes Traditional Coverage Difficult: Older applicants frequently have trouble qualifying for fully underwritten policies. Graded benefits offer improved approval odds.
  • Expedited Application Process: The streamlined application for graded policies allows faster approval, avoiding long waits for medical underwriting results.

By accommodating higher-risk and older individuals, graded benefits provide accessible coverage to those who may struggle to get approved for traditional life insurance. In return, the gradual payout schedule helps manage risk to the insurance company in the early years while providing long-term protection.

What Types of Life Insurance Policies Offer Graded Death Benefits?

 Final Expense Life InsuranceGuaranteed Acceptance Whole Life Insurance
Underwriting ProcessRequires limited underwriting, typically based on age and health questionsRequires no medical exams or health questions
Coverage PurposeProvides coverage for end-of-life expenses, such as funeral costsProvides coverage for end-of-life expenses, such as funeral costs
Graded Death Benefit PeriodTypically 2 yearsAutomatic 2 years
Age EligibilityOften available for individuals between 50 and 85 years oldTypically available for individuals between 50 and 85 years old
Death Benefit$5,000 to $50,000$5,000 to $25,000
Premium CostGenerally affordable monthly premiumsOften higher monthly premiums due to no underwriting
Immediate Coverage OptionImmediate death benefit proction is an optionGraded death benefit only (Immediate coverage may be available for accidental death)
Additional Riders AvailableOptional riders, such as accidental death or terminal illness, are often be availableMay offer optional riders like accidental death or terminal illness

Not all life insurance policies offer graded death benefits. These specialized payout structures are primarily associated with specific types of simplified issue whole life insurance geared towards applicants ages 50 and up.

Two main policy types utilizing graded death benefits are final expense and guaranteed life insurance. While both offer streamlined underwriting for older adults, there are key differences:

Final Expense Insurance

Final expense insurance is tailored to individuals primarily aged 50 and older. It is a simplified whole life insurance option to cover end-of-life expenses like funeral costs. One of the primary features of final expense insurance is that it does not require a medical exam. However, you will need to answer health-related questions during the application process.

The underwriting process for final expense insurance typically involves assessing health status based on health questions on the application. Depending on the responses provided, you may fall into two categories:

  • Immediate Coverage (Day-One Coverage): You may qualify for immediate coverage if your health history aligns with the insurer’s underwriting criteria. This means the policy becomes eligible to pay the full death benefit upon the insured’s death, starting immediately after policy issuance. This option will also offer the lowest rates for coverage.
  • Graded or Modified Death Benefit: In cases where your health history reveals certain pre-existing conditions or health concerns, the insurance company may still qualify for final expense life insurance. However, they might be placed on a graded or modified death benefit structure instead of immediate coverage. Health conditions considered extremely high-risk can lead to a decline in coverage altogether.

Guaranteed Acceptance Whole Life Insurance

Guaranteed acceptance whole life insurance, like final expense insurance, primarily targets individuals aged 50 and older. On the other hand, this type of insurance requires absolutely no medical exam or health-related questions during the application process.

As long as you meet the age requirements specified by the policy, you cannot be denied coverage, regardless of your past or current health conditions.

However, guaranteed acceptance whole life insurance also comes with an automatic two-year graded death benefit. This means that the policy does not pay out the full death benefit for the first two years after the policy has been issued.

Instead, your beneficiaries typically receive a refund of all premiums paid plus interest if death occurs during this initial period. After the two-year graded period ends, the policy functions like a standard final expense whole life insurance policy, providing full death benefit coverage.

Another downside to this type of life insurance is the cost. Guaranteed acceptance plans can be expensive for the simple fact that you are bypassing all underwriting.

Both life insurance options allow higher-risk older individuals to obtain coverage. The graded schedule lets carriers extend policies to people they otherwise may not be able to cover.

Pros and Cons of Graded Death Benefit Policies

Like any insurance product, graded death benefit life insurance has advantages and disadvantages that must be considered.

Fast and Easy Approval Process: Applying requires no medical exam and in come cases no health questions, leading to rapid coverage compared to traditionally underwritten policies.No Payout Initially if Death Occurs Early: If death occurs in the first 1-2 years, only premiums plus interest are refunded rather than the full amount.
Accessible for Higher-Risk Applicants: Older individuals and those with health conditions are often declined for normal policies, but graded benefits guarantee coverage.Higher Premium Costs: Insurers take on more risk with guaranteed approval, so graded policies have higher premiums.
Lock in Insurability: Even if health declines later, the graded policy cannot be canceled as long as premiums are paid.Not Permanent Coverage Yet: Full coverage only kicks in after the initial 2-3 year grading period when payouts increase.
Option for Additional Coverage: Graded policies can supplement existing life insurance that may not fully provide for loved ones.Not Appropriate for Primary Needs: Best used as supplementary due to limitations in early years.

Cost Comparison and Coverage Evaluation

Costs are significant when choosing a graded death benefit life insurance policy. However, looking beyond just premiums is crucial to understanding the full financial picture. Let’s explore how to compare premium costs against expected payouts, weigh additional riders and benefits, and evaluate long-term expenses.

Aligning Premiums with Projected Payouts

Two main paths emerge when reviewing graded life insurance choices: answering health questions or going the guaranteed acceptance route without any medical inquiries.

Both options often utilize a 2-year graded schedule before full benefits kick in. However, there’s a clear difference in cost between the two approaches.

Policies that require upfront health questions typically offer lower premium rates. This is because the insurance company can assess your current health status and risk profile when determining eligibility and pricing.

Guaranteed acceptance plans skip the health questions altogether, making coverage more widely accessible. But that accessibility comes with higher premium costs due to the increased risk of no underwriting.

In short, if you’re comfortable answering questions about medical history and conditions, you’ll generally pay less for a graded benefit policy than if you opt for a guaranteed issue plan with no health questions asked. The trade-off is affordable rates versus an easy approval process.

Considering Optional Riders and Benefits

Graded policies often allow you to add supplemental riders and benefits for an extra cost. Common options include an accidental death benefit rider or a terminal illness rider.

  • The accidental death rider pays the full death benefit amount even if death occurs within the grading period due to an accident, providing peace of mind for your loved ones.
  • A terminal illness rider also pays the full benefit if you are diagnosed with a terminal condition during the grading period, allowing funds to be used for medical expenses and quality-of-life care. Evaluate if these extra protections are worth the additional premium costs based on your health and family needs.

Evaluating Long-Term Costs

While graded life insurance provides lifelong whole life coverage, evaluating the long-term costs is still important. These policies may be a good short-term solution for applicants facing health issues. But they can end up being in place for decades, depending on your future insurability.

Look closely at how lifetime premiums compare to the death benefit amount and graded payout schedule. Make sure your total premium payments over 5, 10, or 20 years seem reasonable compared to your beneficiaries’ projected payout. Also, confirm whether the premiums are fixed or could potentially increase over time. Finally, assess if those long-term costs fit comfortably within your household budget.

Carefully weighing long-term expenses provides vital context for understanding the lasting value of a graded death benefit policy. A policy that is very affordable today may become difficult to manage decades down the road.

Comparing Graded Death Benefit Life Insurance Providers

Choosing the right graded death benefit insurance provider is crucial and requires thoughtful research. With many carriers in the market, here’s how you can effectively compare options to find the best fit.

Key Factors in Comparing Providers

  • Reputation and Longevity: Look for companies with a strong track record of positive customer experiences over many years. Read online reviews and testimonials for any concerning complaints or unsatisfied policyholders. Seek providers with consistently high marks for customer service and claims payments.
  • Financial Strength: Check independent ratings from agencies like A.M. Best or Moody’s. Strong grades, such as ‘A’ or ‘Excellent,’ indicate the company is financially equipped to meet obligations like paying out death benefits. Prefer providers with higher scores.
  • Policy Options: Compare premium costs aligned with transparent graded death benefit payout schedules. Evaluate grading period duration and percentage payouts at each stage. See what optional riders are available.
  • Ease of Service: Choose a provider that makes it simple to get answers and manage your policy. Check for robust online account access, mobile apps, short wait times for customer service, and fast application processing.
  • Unique Incentives or Features: Some providers offer discounts for healthy habits, premium discounts for couples’ policies, or bonus payouts after a certain number of years. An appealing perk could be the deciding factor between otherwise similar providers.

Best Graded Death Benefit Plans (2024)

Need help finding a graded death benefit life insurance policy? The table below represents ten of the best life insurance companies that No Medical Exam Quotes has first-hand experience with regarding life insurance with a graded death benefit.

ProviderAM Best RatingUnderwritingAge RequirementsBenefit AmountGraded PeriodBenefit Payout
Aetna/CVS HealthA (Excellent)Simplified40-75$2,000 - $25,0002-Years110% of all premiums if death occurs in policy years one or two.
AIGA (Excellent)Guaranteed Acceptance50-80$5,000 - $25,0002-Years110% of all premiums if death occurs in policy years one or two.
American-AmicableA (Excellent)Simplified50-85$2,500 - $20,0002-Years30% of benefit in year one, 70% of benefit in year two.
ForestersA (Excellent)Simplified50-80$5,000 - $15,0002-Years110% of all premiums if death occurs in policy years one or two.
GerberA (Excellent)Guaranteed Acceptance50-80$5,000 - $25,0002-Years110% of all premiums if death occurs in policy years one or two.
Great Western (Wellabe)A (Excellent)Simplified50-85$2,500 - $40,0002-Years30% of benefit in year one, 70% of benefit in year two.
Guarantee Trust LifeA- (Excellent)Simplified40-90$2,500 - $20,0002-Years105% of all premium paid in year one, 50% of benefit in year two.
Mutual of OmahaA+ (Superior)Simplified45-80$2,000 - $20,0002-Years110% of all premiums if death occurs in policy years one or two.
ProsperityA- (Excellent)Simplified50-80$1,500 - $35,0002-Years30% of benefit in year one, 70% of benefit in year two.
TransamericaA (Excellent)Simplified18-80$1,000 - $25,0002-Years110% of all premiums if death occurs in policy years one or two.

*Each life insurance company shown in the table will pay the full death benefit for death caused by an accident during the graded period. Starting in year three, all companies eliminate the graded death benefit, resulting in full death benefit protection.

Debunking Common Myths About Graded Death Benefit Life Insurance

When considering graded death benefit life insurance, we can help separate fact from fiction. Misconceptions can steer you away from a potential solution. Let’s demystify some common myths to gain an accurate understanding.

Myth 1: Graded Death Benefit Policies Are Only for Elderly People

While graded policies provide an accessible option for older individuals, they can also benefit younger applicants looking to avoid medical exams or get quick coverage.

Myth 2: Premiums Are Always Sky-High

Rates are often higher than traditionally underwritten policies, but “sky-high” is an exaggeration. Competitively priced options are available, varying prices based on the provider, age, and other factors. Affordable premiums can be found.

Myth 3: Payouts Are Never Full During the Grading Period

This is typically true, with reduced payouts in early years. However, exceptions exist where providers pay a percentage of the full amount while grading.

Myth 4: You Can’t Add Riders to Graded Death Benefit Policies

While supplemental options like accidental death benefits are limited, many carriers offer relevant riders to add flexibility. With the right provider, riders are possible.

Myth 5: All Providers Have Identical Grading Periods

In reality, durations vary significantly between companies. Do not assume consistent timelines across all providers.

Tips for Choosing the Right Graded Death Benefit Policy

Choosing the ideal graded benefit life insurance policy takes research and self-reflection. Follow these tips to find coverage well-suited for your needs and budget.

Conduct Thorough Provider and Policy Research

Once your needs are defined, dive into researching providers and policies. Compare highly-rated companies for financial stability and positive customer feedback.

Look beyond just premium costs to evaluate grading periods, payout schedules, available riders, and customer service offerings. Use online tools to generate quotes from multiple providers. Reach out to customer support with questions to gauge responsiveness.

Consider having an independent insurance agent (such as No Medical Exam Quotes) assist you with assessing objective information on pricing, benefits, and exclusions across a wide range of policy options. Our expertise can help identify the optimal solution.

Researching and comparing providers and policies with your specific needs in mind allows you to confidently select graded life insurance coverage that fits your personal circumstances and preferences.

Real-Life Scenarios and Case Studies

Case 1: Richard, Age 68

Richard, a 68-year-old male, was declined for traditional life insurance due to his health history. He opted for a graded death benefit policy with a 2-year grading period. Sadly, Richard passed away 14 months into the policy. The payout to his family was limited to a return of premiums plus interest since he was still within the grading period.

Although Richard’s beneficiary only received a refund of all the premiums that Richard paid for the past 14 months plus 10% interest, the refund was enough to help pay for funeral costs.

Case 2: Barbara, Age 58

Barbara, age 58, could not qualify for fully underwritten life insurance because of her diabetes and high blood pressure. She opted for a guaranteed acceptance policy with a 2-year graded period, so her family would at least receive some payout. After the grading period ended, Barbara’s family had the full death benefit upon her passing at age 72.

Case 3: Eugene, Age 63

Eugene, 63, wanted to cover his funeral expenses but could not afford a fully underwritten final expense policy due to health issues. He obtained a $10,000 graded policy with a 2-year grading period that offered a modified benefit payout.

When Eugene unfortunately passed away in the first year, his beneficiaries received 30% of the $10,000 death benefit amount ($3,000) due to the partial payout rider. This reduced graded benefit did not leave any extra money to the beneficiaries but helped cover the entire cremation cost.


Graded death benefit life insurance fills an important niche for applicants who may struggle to obtain traditional coverage. By providing accessible options for higher-risk groups, graded policies make insurance attainable for those who need protection.

However, these unique policies require careful evaluation. The gradual payout structure limits early benefits, so aligning premiums and projected payout timing is crucial. And though affordable initially, lifelong budgeting for fixed costs matters.

By understanding graded benefits in depth, debunking myths, and researching providers thoroughly, you can determine if this solution suits your health, age, and financial situation. Graded policies serve a specific purpose, but evaluating trade-offs allows informed insurance decisions.

With the right set of expectations and priorities, graded life insurance can provide necessary coverage when limited options exist. Weigh all considerations carefully. And know that accessible solutions are out there for those not well-served by traditional policies. Protecting loved ones is possible, even when health or age presents challenges.

Frequently Asked Questions

What is a graded death benefit in life insurance?

A graded death benefit is a payout structure in certain life insurance policies (commonly final expense insurance)  where the full death benefit is not immediately payable if the insured passes away. Instead, the benefit gradually increases over a specific period, often 2-3 years.

Who is eligible for graded death benefit life insurance?

Graded death benefit policies are typically designed for individuals with health issues or advanced age, making them less likely to qualify for traditional life insurance policies.

What is the difference between final expense and guaranteed acceptance graded death benefit policies?

Final expense insurance may require answering health questions and can offer immediate coverage (day-one coverage) or a graded death benefit based on health answers. On the other hand, guaranteed acceptance policies have no health questions but come with an automatic 2-year graded death benefit.

Why would someone choose a graded death benefit policy?

Graded death benefit policies are chosen by individuals who want to secure some form of life insurance coverage without undergoing medical exams or providing detailed health information. They may also appeal to older applicants or those with health conditions.

Is graded death benefit life insurance more expensive than traditional policies?

Graded death benefit policies often have higher premiums compared to fully underwritten policies due to the simplified underwriting process. However, they can provide an option for those who might otherwise be declined for coverage.

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Picture of Jeffrey Manola - Life Insurance Expert
Jeffrey Manola - Life Insurance Expert

Jeffrey Manola is the founder of No Medical Exam Quotes, an online insurance agency that strongly focuses on helping people shop for the perfect life insurance policy. He is a licensed life insurance expert and content creator for the website.

Before becoming a life insurance agent, he served in the United States Marine Corps, transitioning from serving his country to helping families find affordable life insurance coverage beginning in 2009. Since starting a career as a licensed life insurance agent, Jeffrey has helped thousands of families with their life insurance needs.

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