What Is Modified Life Insurance?

Modified life insurance is a type of life insurance policy that offers lower premiums than traditional whole life insurance policies during the first few years of the policy. After the initial period, the premiums typically increase, but the death benefit remains the same. Modified life insurance can be a good option for people who want to save money on premiums but still have the peace of mind of knowing that their loved ones will be taken care of if they die.

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.

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

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.

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.

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

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.

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.