Life insurance graded death benefit: What it is, how it works, pros & cons

Life insurance policies with a graded death benefit come with a waiting period — if you die before the waiting period expires, your loved ones will only receive a portion of the full coverage amount on your policy.

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Katherine MurbachEditor & Licensed Life Insurance AgentKatherine Murbach is an editor and a former licensed life insurance agent at Policygenius. Previously, she wrote about life and disability insurance for 1752 Financial, and advised over 1,500 clients on their life insurance policies as a sales associate.

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Antonio Ruiz-CamachoAntonio Ruiz-CamachoAssociate Content DirectorAntonio helps lead our life insurance and disability insurance editorial team at Policygenius. Previously, he was a senior director of content at Bankrate and CreditCards.com, as well as a principal writer covering personal finance at CNET.
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Ian Bloom, CFP®, RLP®Ian Bloom, CFP®, RLP®Certified Financial PlannerIan Bloom, CFP®, RLP®, is a certified financial planner and a member of the Financial Review Council at Policygenius. Previously, he was a financial advisor at MetLife and MassMutual.

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Life insurance policies with graded death benefits have a waiting period before your full coverage becomes active. This means the amount of money your beneficiaries can claim may vary depending on when you die.

If you pass away during the waiting period — two years in most cases — your beneficiaries may only receive a portion of the death benefit of your policy.

Graded life insurance is often best for people who may not be eligible for traditional life insurance coverage due to age or health reasons, or for people who are mainly buying life insurance to cover end-of-life costs, like a funeral.

What is a graded death benefit?

A graded death benefit is a coverage amount that becomes fully active only after a life insurance policy has been in effect for a certain period of time. Graded death benefits are often a feature of certain kinds of permanent life insurance policies. Term life insurance policies don’t typically have graded death benefits.

How does a graded death benefit work?

Graded death benefits are based on a timeline set by your insurer — the most common time frame used as a guideline is two years.

  • For example, let’s say you buy a life insurance policy with $25,000 worth of coverage. 

  • If you have a graded death benefit and you die within the first two years your policy is active, your beneficiaries may only get to file a claim equal to the amount of money you’ve paid in premiums so far — instead of the full $25,000.

  • If you die more than two years after you activated your policy, your beneficiaries can file a claim as normal for the full $25,000.

Insurance companies can also have different guidelines for paying out claims based on the cause of death.

  • For instance, if you die of natural causes during the first two years, the insurer will pay your beneficiaries based on how much you’ve paid in premiums.

  • However, if you die due to an accident in the first two years, your beneficiaries may be able to claim the whole death benefit — in this case, the full $25,000.

There’s no action you need to take if you have a graded death benefit on your policy, except to make sure your beneficiaries know if you die shortly after your policy becomes active, they’ll receive less money.

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How are life insurance death benefits graded?

During the introductory time period set by your insurer, your death benefit amount is based on the premiums you’ve paid into your policy.

  • If your policy costs $100 per month or $1,200 per year, and you die after it’s been in effect for one year, your beneficiaries could receive $1,200.

  • Sometimes, insurers pay out 110% of the premiums paid in, rather than just 100%. So in the above case, your beneficiaries could claim $1,320 instead.

  • If you die after the two year period, your beneficiaries can file a claim for the full death benefit amount on your original policy. 

Each insurer has its own guidelines for how they structure graded death benefits. When you’re buying your policy, the life insurance agent you’re working with will be able to walk you through the stipulations for your specific policy.

What types of life insurance polices feature graded death benefits?

Graded death benefits are usually a common feature in certain types of permanent life insurance policies aimed at covering end-of-life expenses, like a funeral or medical bills.

  • Final expense life insurance is the main type of life insurance with a graded death benefit. Final expense policies offer small amounts of permanent coverage up to a certain limit — usually around $25,000. 

  • Final expense life insurance is also called simplified issue life insurance, which just means it has fewer health qualifications to apply than traditional life insurance. There’s no medical exam required either, which is a common part of the traditional life insurance application process. However, people with complex health profiles might still be denied approval.

  • Guaranteed issue whole life is another type of final expense policy that usually has graded death benefits. 

  • Guaranteed issue is the easiest type of life insurance to get approved for because there’s no medical exam and no health qualifications for approval. Practically anyone who applies can get approved. However, guaranteed issue policies are typically reserved for people age 45 and up.

What requisites do you need to buy graded life insurance?

Graded life insurance generally has fewer requirements than other types of policies.

  • You’ll need to be of sound mind to complete the application. People with conditions such as Alzheimer’s or dementia may not qualify.

  • You’ll need a U.S.-based bank account for payment. 

  • Some insurers require you to be a U.S. citizen or green card holder, but others simply require that you live in the U.S.

Aside from those factors, there are very few — if any — additional health requirements to apply.

If you’re applying for a simplified issue final expense policy with a graded death benefit, you’ll likely have to answer a few more health-related questions on your application than you would for a guaranteed issue policy.

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What are the advantages & disadvantages of a graded death benefit?

Life insurance with a graded death benefit can be a great option for people who may not qualify for traditional life insurance, but the waiting period to receive full coverage isn’t ideal if you have other policy choices available.

Pros

  • Easier to qualify for. Policies with graded death benefits have fewer health restrictions, so if you’re an older adult or you have a serious health condition, you have a higher likelihood of approval.

  • Simple application process. Graded death benefit life insurance doesn’t require a medical exam for approval, and some policies don’t require any health questions at all. The turnaround time for activating your policy can be as quick as one to three days, which is much faster than some other kinds of traditional life insurance.

Cons

  • Waiting period for full coverage. If your policy has a graded death benefit, it’ll need to be active for two years — or a similar timeline specified by your insurer — before it offers the full death benefit protection. For this reason, graded life insurance may not be your first choice for coverage.

  • More expensive. Graded death benefit options like final expense life insurance are generally more expensive than other types of coverage — like term life policies. 

  • Limited coverage amounts. Most final expense policies with graded death benefits have limits on how much coverage you can apply for. You can usually apply for a maximum of around $25,000.

Who should consider a life insurance graded death benefit?

Life insurance policies with graded benefits are usually more expensive and limiting than traditional policies, but can be an option for people under certain circumstances.

Older adults

If you’re in your 70s or 80s and you’re looking for life insurance, policies with graded death benefits are going to be easier to qualify for than other types of coverage. Many policies with graded death benefits are available for people up to age 80, or even age 85, depending on the insurer.

People with serious health conditions

If you’re over the age of 45 or 50 and you have a serious health condition — like heart disease, for example — graded life insurance gives you an opportunity to get some coverage, even if you might not qualify for other types of policies.

People who want to cover funeral costs

If you know your loved ones would struggle to pay for a funeral, buying a final expense policy can help provide them with a financial buffer. However, you’ll want to speak with a life insurance agent before buying to make sure you don’t qualify for a final expense policy without a graded benefit first — you want to ensure you have the maximum coverage possible, as soon as possible.

Best life insurance companies for graded death benefits

Methodology

Why you can trust our picks

Our recommendations are based on internal and external expert analysis, as well as our Policygenius Life Insurance Price Index, which uses real-time data from leading life insurance companies to determine pricing trends. When reviewing a life insurance company, our editorial team uses a proprietary scoring rubric with five factors — price, policy details, financial strength, transparency, and customer experience — to assign an unbiased rating between one and five stars. These ratings are also taken into consideration as part of our company recommendations. We don’t get paid for our reviews.

Our reviews and recommendations can help you find a reliable insurer for your family’s financial protection, but the best life insurance company for you depends on multiple factors. A licensed agent at Policygenius can support you during the application process to ensure you get the right coverage for your circumstances at the most competitive price.

Read more about our reviews methodology

Mutual of Omaha

Mutual of Omaha logo

Policygenius rating 

Our proprietary rating methodology takes multiple factors into account, including customer satisfaction, cost, financial strength, and policy offerings. See the "methodology" section for more details.

Full orange starFull orange starFull orange starFull orange starHalf orange star

4.5

AM Best rating 

AM Best is a global credit rating agency that scores the financial strength of insurance companies on a scale from A++ (Superior) to D (Poor).

A+

Cost 

Using a mix of internal and external rate data, we grade the cost of each insurance company's premiums on a scale from least expensive ($) to most expensive ($$$$$).

$

$

$

$

$

No-medical-exam option

Why we chose itchevron icon

Mutual of Omaha is a reputable company that offers a variety of life insurance products — including a no-medical-exam option — so that you can select the type of life insurance that best suits your needs.

Pros and conschevron icon

Pros

  • No-medical-exam options for older applicants

  • Strong financial and customer ratings

Cons

  • Policies are more expensive than average

  • Slow turnaround time

Mutual of Omaha offers final expense life insurance options both with and without graded death benefits. This company also offers a guaranteed issue life insurance policy with a graded death benefit.

  • If you die of natural causes within the first two years your policy is active, the insurer will pay your beneficiaries 110% of your premiums paid. 

  • If you die by suicide within the first two years, the insurer will pay 100% of your premiums. 

  • If you die by accidental causes in this time frame, your beneficiaries can still claim the full death benefit.

Transamerica

Transamerica logo

Policygenius rating 

Our proprietary rating methodology takes multiple factors into account, including customer satisfaction, cost, financial strength, and policy offerings. See the "methodology" section for more details.

Full orange starFull orange starFull orange starFull orange starHalf orange star

4.6

AM Best rating 

AM Best is a global credit rating agency that scores the financial strength of insurance companies on a scale from A++ (Superior) to D (Poor).

A

Cost 

Using a mix of internal and external rate data, we grade the cost of each insurance company's premiums on a scale from least expensive ($) to most expensive ($$$$$).

$

$

$

$

$

No-medical-exam option

Why we chose itchevron icon

Transamerica is one of the oldest and largest life insurance companies, with over 12 million active accounts today. It offers affordable rates for almost every age, and you can even skip the medical exam if you fall under a certain age or coverage amount.

Pros and conschevron icon

Pros

  • Competitive rates for term life insurance

  • No-medical-exam available for qualifying applicants, including smokers and people between 60 and 70, which is rare

  • One of the fastest turnaround times in the industry for traditionally underwritten term policies

Cons

  • Term life not available in New York

  • Not a good option for people with a history of cancer, alcohol abuse, or asthma

Transamerica offers simplified issue final expense policies with and without graded death benefits. Your health at the time of application will determine which type of policy is the best fit for you.

  • The insurer’s graded policy option pays 110% of your premiums to your beneficiaries if you die of natural causes during the first two years of the policy. 

  • Your beneficiaries would receive 100% of premiums paid in the event of suicide.

award icon

2024 Policygenius award winner

Corebridge Financial

Corebridge Financial logo

Policygenius rating 

Our proprietary rating methodology takes multiple factors into account, including customer satisfaction, cost, financial strength, and policy offerings. See the "methodology" section for more details.

Full orange starFull orange starFull orange starFull orange starHalf orange star

4.6

AM Best rating 

AM Best is a global credit rating agency that scores the financial strength of insurance companies on a scale from A++ (Superior) to D (Poor).

A

Cost 

Using a mix of internal and external rate data, we grade the cost of each insurance company's premiums on a scale from least expensive ($) to most expensive ($$$$$).

$

$

$

$

$

30+ year terms

All 50 states

Why we chose itchevron icon

With competitive pricing and a range of flexible term periods for its Select-a-Term product, Corebridge is a solid option for many life insurance shoppers. Note: We are currently using AIG’s financial strength ratings until Corebridge has its own rating..

Pros and conschevron icon

Pros

  • Competitive pricing for all ages

  • Favorable underwriting for people with heart conditions and diabetes

  • Good for current and recently pregnant people, including people with gestational diabetes

Cons

  • Not the best for people with mental health conditions, including anxiety and depression

  • No no-medical-exam term option

Corebridge Financial offers a guaranteed issue whole life insurance policy with a graded death benefit. 

  • Similar to other insurers, the company will pay 110% of premiums paid in the event of a death by natural causes. 

  • However, Corebridge’s suicide clause lasts for the entire life of the policy, which means that even after two years, death by suicide won’t warrant the full death benefit payout.

Comparing the best graded life insurance companies of 2024

Company

Policygenius rating

AM Best rating

Corebridge Financial

4.6/5 ★

A

Transamerica

4.6/5 ★

A

Mutual of Omaha

4.5/5 ★

A+

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How to choose a graded death benefit life insurance policy

  1. Connect with an independent broker. The first step is to set up a call or appointment with an independent broker like Policygenius. Not every insurer offers graded death benefit life insurance policies, so a broker will be able to save you time by narrowing down your options to the insurers that do.

  2. Review your health profile. Next, you’ll review your health details and personal situation with your insurance expert. Your health status is a main determining factor for which type of graded policy will be best for you — whether that’s a simplified issue final expense policy or a guaranteed issue final expense policy.

  3. Choose your coverage amount and apply. Once you know which type of graded life insurance policy fits your needs, a Policygenius expert can help you fill out an application, which is where you’ll select your coverage amount as well as the payor and beneficiary of your policy.

If you’re not sure whether a graded life insurance policy is right for you, connect with a Policygenius agent. At Policygenius, our experts are licensed in all 50 states and can walk you through the entire life insurance buying process while offering transparent, unbiased advice.

Author

Katherine Murbach is an editor and a former licensed life insurance agent at Policygenius. Previously, she wrote about life and disability insurance for 1752 Financial, and advised over 1,500 clients on their life insurance policies as a sales associate.

Editor

Antonio helps lead our life insurance and disability insurance editorial team at Policygenius. Previously, he was a senior director of content at Bankrate and CreditCards.com, as well as a principal writer covering personal finance at CNET.

Expert reviewer

Ian Bloom, CFP®, RLP®, is a certified financial planner and a member of the Financial Review Council at Policygenius. Previously, he was a financial advisor at MetLife and MassMutual.

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