Modified whole life insurance

A modified whole life policy offers permanent coverage for a low initial premium that increases significantly after a certain number of years.

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Amanda Shih

Amanda Shih

Editor & Licensed Insurance Expert

Amanda Shih is an insurance editor and licensed Life, Health, and Disability agent at Policygenius in New York City. Her work has appeared in Slate, Lifehacker, Jetty, and J.D. Power.

Published June 1, 2021|3 min read

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Most people buying whole life insurance will buy a traditional policy. Coverage comes with a savings-like feature called the cash value and pays a lump sum to your loved ones whenever you die. 

Modified whole life insurance is a type of whole life insurance that offers lower premiums for a short time (usually two to three years), followed by a higher rate for the remainder of the policy. The initial savings may be tempting, but it’s not the best life insurance policy for most people because of the high premiums and complicated policy options.

Key Takeaways

  • Modified whole life policies provide lifetime insurance coverage at a low initial cost followed by a significant increase

  • The period when premiums are lower varies by policy, but is often the first two to three years of coverage

  • You usually can’t contribute to your policy’s cash value during the modified premium period

  • Most people should not buy modified whole life insurance due to its high cost and complexity

What is modified whole life insurance?

Modified whole life insurance, also known as modified premium whole life, offers low premiums for an introductory period, after which your premiums increase significantly. 

The premium goes up only once and then remains the same as long as the policy stays in force. Many modified whole life policies don’t allow you to contribute to your policy’s cash value during that introductory period.

Modified premium policies are typically advertised as a way to buy a policy with a higher death benefit right away, rather than getting the lower coverage you can afford now and trying to increase your benefit when you’re older.

What’s the difference between modified whole life and traditional whole life insurance?

The two major differences between traditional whole life insurance and modified whole life insurance are:

  • Premiums: Standard whole life insurance offers the same premiums for your entire policy, but modified whole life premiums are low for a set period before increasing.

  • Cash value: Your premiums begin to fund your cash value account right away with whole life insurance, but you will need to wait until your premiums go up to begin contributing to the account with modified whole life.

While the differences may seem small, they can have a real impact on your finances. You may not lose out on much cash value growth over two years, but a longer introductory period could set you back. And you’ll be going without a key policy feature while paying five to 15 times more than it costs to get similar coverage under a term life policy.

→ Learn more about the different types of whole life insurance

How much does modified whole life insurance cost?

The lower rates you’re charged early in your modified whole life coverage aren’t a discount—you’ll make up the difference with higher payments after the initial period ends. 

Based on June 2021 Policygenius data, a 35-year-old male without complex health issues would pay $517 per month for a $500,000 whole life insurance policy. A modified whole life policy may be lower than that for a few years, but will be even higher afterward.

Compare those costs to term life insurance, where the same 35-year-old male would pay $30.27 per month for a $500,000, 20-year term policy. 

→ Learn more about how whole life insurance rates are set

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Should you get modified whole life insurance?

Most people shouldn’t buy a modified whole life insurance policy. Traditional whole life is already more expensive and complex than you probably need. If you buy a modified whole life policy, you’re agreeing to a premium increase whether it fits your future budget or not.

If your premiums go up and you can’t pay them, your policy will lapse and you could be liable for high surrender fees. More importantly, your family will lose out on your policy’s financial protection.

You’ll get more coverage for less money by buying a traditional term life insurance policy. If you eventually decide you need whole life coverage for your investing goals or to support a lifelong dependent, you can:

  • Buy a whole life policy once you can afford the coverage you need

  • Buy a smaller whole life policy and supplement it with term coverage

  • Exercise the conversion rider on your term policy

If you are seriously considering a modified whole life policy, carefully review your budget and consult with a financial advisor to ensure it’s the best choice for you and your family.

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Modified whole life insurance is less common because there’s little upside for the life insurance company or insurance buyers. If you can afford the initial lower premium offered under a modified policy but can’t make payments once your premium increases, you lose out on coverage and your provider loses a customer.

Modified whole life insurance FAQ:

How does modified whole life insurance work?

Modified whole life insurance provides lifetime coverage. You’ll get a lower initial premium for a set number of years, then pay a higher rate for the remainder of the policy.

How is modified whole life insurance different from standard whole life?

Modified policies differ in their lower initial premiums, and you’re usually barred from contributing to your cash value during the modified premium period.

Is modified whole life insurance interest-sensitive?

No. Your cash value will grow based on an interest rate set by your insurance provider.

Who should buy modified whole life insurance?

Unless you know you need lifetime coverage and are sure you can afford the premium increase in the future, there’s no reason to buy a modified whole life policy.