Life insurance can help financially protect your loved ones in the event of your death. Buying life insurance can give you peace of mind, and some policies even allow you to borrow against the policy’s cash value to finance expenses. Modified whole life insurance takes a slightly different approach than standard life insurance policies.
Modified whole life insurance is a life insurance policy with a different premium structure. Premiums start off low, then increase over time, and the insurance policy lasts for your entire life, as long as you pay your premiums on time.
A modified whole life insurance policy also builds cash value as you make each of your payments. Since the initial payments are lower, it can take longer to build cash value with a modified whole life insurance policy than it would with a traditional whole life insurance policy. Once you’ve built up cash value, you can potentially borrow against that value to finance expenses like home repairs.
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When you buy a modified whole life insurance policy, your initial premiums will be lower, which can make it easier to afford life insurance when you’re early on in your career.
Gradually, those premiums increase when you reach preset intervals. For example, premiums might increase after five or ten years. As a result, you’ll pay the bulk of the premium costs later on in life, so a modified whole life insurance policy can be appealing to individuals who know they’ll earn higher salaries or otherwise have more money in the future.
In addition to accumulating cash value, modified whole life insurance policies can earn annual dividends if the insurer performs well. You can use those dividends to buy more coverage, pay your premiums, and repay any loans you’ve taken out against your policy. You may also receive your dividends in the form of a check or ACH payment.
The cost of a modified whole life insurance policy is initially lower than other life insurance policies. However, once the premiums increase after your introductory period ends, modified whole life insurance can cost more than traditional whole life insurance. You will need to be prepared to pay those higher premiums as you age, and if you have a long lifespan, a modified whole life insurance policy could ultimately be more expensive than a traditional whole life insurance policy.
Modified whole life insurance offers advantages in certain situations. For example, if you want life insurance coverage but you’re paying down debt, you’re early on in your career, or you temporarily have high expenses and can’t afford a traditional policy, a modified policy can be more affordable and accessible.
Not sure which type of life insurance is right for you? You can get free life insurance quotes online today to start comparing your options.
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Paige Cerulli Paige Cerulli is a freelance content writer and journalist who specializes in personal finance topics. She graduated from Westfield State University and brings more than a decade of professional writing experience to the ConsumerCoverage team. Paige’s work has appeared in outlets including USA Today, Business Insider, and more.
