What is modified whole life insurance?
Modified whole life insurance — also called modified premium whole life — is a type of permanent life insurance policy that comes with lower premiums for the first few years the policy is in effect. After the introductory period, your premiums will increase.
The lower premiums typically last for two to three years, but can last for up to 10 years. The higher premiums will last the rest of your life. Modified whole life insurance doesn’t expire — it’ll last as long as you continue making payments.
While the initial savings of modified whole life insurance is appealing, it’s not the best life insurance policy for most people because of the cost and complicated policy options.
How does modified whole life insurance work?
Modified whole life insurance works similar to traditional whole life insurance policies. It comes with a cash value savings account in addition to the death benefit — the sum of money your beneficiaries receive when you die.
Every time you pay a premium, a portion goes toward the cost of maintaining the policy and a portion goes toward your cash value. Many modified whole life policies don’t allow you to contribute to your policy’s cash value account during the introductory period.
What’s the difference between standard whole life & modified whole life insurance?
The two major differences between traditional whole life insurance and modified whole life insurance revolve around the cost of your premiums and how the policy’s cash value is funded.
The premiums: Standard whole life insurance has the same premiums for your entire policy, whereas modified whole life premiums change after the introductory period.
The cash value: With most modified whole life policies, your premiums won’t fund your cash value until the introductory period is over.
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 if your introductory period is longer, it can set back your cash value growth.
Even with traditional whole life policies, it can take years and sometimes decades to accumulate significant cash value. With a modified whole life policy, it’ll take even longer.
And you’ll be going without a key policy feature while paying much more than what 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?
Based on Policygenius data, a 30-year-old female without complex health issues could pay $408 per month for a $500,000 whole life insurance policy.
You might pay less than that for the first few years of a modified whole life policy, but you’ll pay even more than that for decades afterward. 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 once the introductory period is over.
In comparison to term life insurance, the same 30-year-old female would pay $22.98 per month for a $500,000 policy that lasts 20 years.
→ See more whole life insurance rates
Should you get modified whole life insurance?
Although buying a modified premium policy is a way to buy whole life before you’d normally be able to afford the premiums, most people don’t need this type of coverage. If you buy a modified whole life policy, you’re:
Committing to higher premiums in a few years, whether you can afford them or not
Losing out on cash value savings, one of whole life’s main benefits
Paying much more for your coverage than you would for term life insurance
If you can’t pay your premiums when they increase, 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.
If you have a need for permanent coverage — like a lifelong dependent — and you’re considering a modified whole life policy, consulting a financial advisor can help you ensure that you’re selecting the best policy for your family’s situation.
Frequently asked questions
How does modified whole life insurance work?
Modified whole life insurance provides lifetime coverage. You’ll pay a lower 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?
Standard whole life typically has level premiums for the length of the policy — meaning they don’t change. Modified policies have lower initial premiums for several years, and then they increase. The cash value of modified whole life policies also doesn’t begin to grow until the introductory period with lower premiums is over.
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, we don’t recommend buying a modified whole life policy.
