What Is Modified Life Insurance?

Modified life insurance is any policy with an alternative premium payment structure. Premiums usually start lower than a standard policy, typically during the first 3 to 5 years. Then, the premiums increase after 5 to 10 years. Modified whole life insurance is the most common type, but modified term life insurance also exists.

Rachel Christian, writer and researcher for RetireGuide
  • Written by
    Rachel Christian

    Rachel Christian

    Financial Writer and Certified Educator in Personal Finance

    Rachel Christian is a writer and researcher for RetireGuide. She covers annuities, Medicare, life insurance and other important retirement topics. Rachel is a member of the Association for Financial Counseling & Planning Education.

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  • Edited By
    Matt Mauney
    Matt Mauney, Senior Editor for RetireGuide

    Matt Mauney

    Financial Editor

    Matt Mauney is an award-winning journalist, editor, writer and content strategist with more than 15 years of professional experience working for nationally recognized newspapers and digital brands. He has contributed content for ChicagoTribune.com, LATimes.com, The Hill and the American Cancer Society, and he was part of the Orlando Sentinel digital staff that was named a Pulitzer Prize finalist in 2017.

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  • Financially Reviewed By
    Eric Estevez
    Eric Estevez, Independent Licensed Life Insurance Agent

    Eric Estevez

    Owner of HLC Insurance Broker, LLC

    Eric Estevez is a duly licensed independent insurance broker and a former financial institution auditor with more than a decade of professional experience. He has specialized in federal, state and local compliance for both large and small businesses.

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  • Published: January 25, 2021
  • Updated: January 24, 2023
  • 4 min read time
  • This page features 4 Cited Research Articles
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How to Cite RetireGuide.com's Article

APA Christian, R. (2023, January 24). What Is Modified Life Insurance? RetireGuide.com. Retrieved March 28, 2023, from https://www.retireguide.com/life-insurance/permanent/whole/modified/

MLA Christian, Rachel. "What Is Modified Life Insurance?" RetireGuide.com, 24 Jan 2023, https://www.retireguide.com/life-insurance/permanent/whole/modified/.

Chicago Christian, Rachel. "What Is Modified Life Insurance?" RetireGuide.com. Last modified January 24, 2023. https://www.retireguide.com/life-insurance/permanent/whole/modified/.

Understanding Modified Life Insurance

Modified life insurance is characterized by premiums that change over time, usually five to 10 years after the policy begins.

The death benefit protection stays the same, but the premiums aren’t level.

After premiums increase, they typically stay consistent for the rest of the policy. Premium amounts typically rise only once.

This contrasts with traditional or level life insurance policies, where premiums are locked in and stay the same over time.

After the period of lower premiums expires, the cost of the modified life policy is usually higher than a traditional level life insurance plan.

Modified life insurance may also be called:
  • Modified premium life insurance
  • Graded life insurance
  • Modified whole life insurance
  • Modified term life insurance

Premium details — including when rates are scheduled to increase and by how much — will be clearly stated in the illustration and policy data page.

Term vs. Whole Life Modified Policies

Modified life insurance can either be term life insurance or whole life insurance, which is a type of permanent life insurance.

Term life policies last a specific time — such as 10, 20 or 30 years — and then expire.

Permanent life insurance lasts your entire life and usually includes a cash value component, or savings account, that grows slowly over time.

The most common type of modified life insurance is modified whole life insurance.

Except for 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.


Pros and Cons of Modified Whole Life Insurance

Modified whole life policies may seem like an affordable way to ease into permanent life coverage.

However, it’s important to understand the pros and cons before making a decision.

Advantages of Modified Whole Life Insurance
Lower Premiums in the Beginning
Because premium payments are lower in the early years of the policy, modified life insurance may be appealing if you can’t obtain better coverage — and you expect to make more money in the future.
Face Value Does Not Change
Even though premium payments are lower in the beginning, the face value of modified life insurance remains the same throughout the policy. So, the death benefit payout your beneficiary receives if you die never changes, no matter how much you pay for coverage.
Permanent Coverage
Modified whole life insurance offers a death benefit that never expires so long as premiums are paid. This contrasts with term life insurance, which only lasts for 10, 20 or 30 years.

Modified premium whole life insurance has many moving parts. Make sure you fully understand any potential premium changes before completing an application.

Drawbacks of Modified Whole Life Insurance
Less Cash Value Accumulation
Because payments are lower the first few years, the cash value component of modified whole life insurance accumulates more slowly than a level premium whole life product.
Most modified life insurance is whole life insurance. These policies tend to be much more complex than traditional term life insurance. They may also include fees and other costs.
More Expensive Long-Term
Although premiums may start out cheaper, modified premium whole life insurance typically leads to more money paid to the insurance company over the policy period. Also, whole life insurance is almost always more expensive than term life insurance — even if premiums are lower in the beginning.
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Is Modified Life Insurance Right for You?

Modified whole life insurance is often marketed to younger people as a way to obtain permanent coverage at a more affordable rate.

These policies are designed for people who cannot initially afford regular whole life premiums but who think they can afford higher premiums in the future.

Whole life insurance is one of the most expensive options out there. So, initially paying less for a policy that lasts your entire lifetime may sound appealing.

Check your policy for a table of guaranteed maximum premiums and make sure you can afford any premium increases for as long as you want to keep the policy.

People with chronic health conditions may also find the application and approval process easier for modified life insurance compared to some other insurance products.

However, whole life insurance is almost always more expensive than a traditional term life policy.

For example, a 30-year-old man in good health may purchase a 20-year term life insurance policy worth $300,000 for about $228 a year.

In contrast, the same man would pay about $4,015 a year for a $300,000 whole life policy.

Even if this whole life policy featured modified premiums during the first five to 10 years, the overall cost will be higher than a traditional term life policy.

Last Modified: January 24, 2023

4 Cited Research Articles

  1. Alabama Department of Insurance. (n.d.). Types of Policies. Retrieved from https://www.aldoi.gov/consumers/PolicyTypes.aspx
  2. Florida Department of Financial Services. (n.d.). Life Insurance: A Guide for Consumers. Retrieved from https://web.archive.org/web/20221024224229/http://www.myfloridacfo.com/Division/Consumers/UnderstandingCoverage/Guides/documents/Life-Insurance_web.pdf
  3. Florida Insurance Licensing Association. (n.d.). Lesson Three: Life Insurance Policies, Provisions, Options and Riders Key Concepts. Retrieved from https://course.uceusa.com/courses/content/405/page_158.htm
  4. New York Department of Financial Services. (n.d.). Life Insurance: Types of Policies. Retrieved from https://www.dfs.ny.gov/consumers/life_insurance/types_of_policies