Modified Whole Life Insurance Pros and Cons

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  • Post last modified:January 1, 2021

Modified whole life insurance is for those people who don’t want to pay the premium per month at the same rate from the beginning. If you want to start with a lower premium it is the one you should look for.

You may have financial problems now but can recover it in the next few years. This policy enables you to pay low premiums for the first 5 to 10 years.

Hence, you can have the protection of life insurance as well as a low premium at the start.

The Pros & Cons of Modified Whole Life Insurance

modified whole life insurance for seniorsA modified whole life is the most popular among clients as it offers more benefits. That is not to say it lacks a few drawbacks here and there.

After all, everything has its own advantages and disadvantages.

Nonetheless, understanding the plan will enable you to make up your mind easily as to whether to go with this or to find another policy.

After all, don’t you want something that offers more of the advantages you are looking for and less of the disadvantages you are trying to avoid?

Pros are Here

Minimized Payments in First 5-10 Years

The reason why many people shy away from whole life insurance plans is to pay premiums for many years without default. When you skip paying premiums even just a few times, the contract terminates and you may lose all your savings.

The worst part is that with the traditional whole life insurance, you are obliged to pay premiums for decades at a flat rate. This is where a modified policy stands out.

With this policy, premiums are conveniently flexible. In the first 5-10 years, you will pay lower premiums before the rates are adjusted upwards. This lets you have some cash to pay other bills.

Provides Comprehensive Protection

The beauty of this policy is the fact that it provides comprehensive protection over your lifetime. As soon as the contract is started, you are covered comprehensively for the rest of your life even if you have only paid premiums three or so times with decades of premiums to pay further.

The number of times you have made payments does not matter, what matters is how you abide by your premium payments. As long as there is not a single default yet, you are safe.

Helps Build Cash Value

Another incredible benefit of this insurance policy is that it helps you build cash value just like other life insurance policies.

Should you decide to cancel the contract today, for one reason or another, the premiums you have paid over the years do not just go up in smoke. You will get a certain percentage of those premiums.

In addition, you can cash out some of your premiums without necessarily having to terminate the contract.

Cash Value Is Tax-Deferred

The best part about the cash value that you will get should you decide to terminate your contract anytime is tax deferral.

You enjoy a temporary tax break on the cash value until after investing the money somewhere else and profits start coming in.

Before then, your money will not be taxed.


The policy is more flexible than traditional life coverage.

First, flexibility can be seen in the manner in which premiums are paid. You start with lower premiums, which will increase after a given duration of time.

What’s more, you can easily personalize your coverage in a manner that particularly suits you.

Cons are Here

premium becomes high after few yearsPremium Rises after a Set Period

The fact that you start with paying lower premiums and continue with paying higher premiums after 5-10 years makes no sense to the client.

It would be better if it were vice versa so that you part with more in the first few years of the contract and part with less from the beginning of the sixth or eleventh year going forward.

Takes Time to Build Cash Value

You need to pay premiums consistently for many decades before being eligible for a cash value.

Getting this benefit requires much patience and financial commitment, which many people may not have.

More Complex than Traditional Insurance

Although it sounds great with so many benefits, the reality is that it is more complex than what it seems.

In fact, it is more complicated than traditional insurance policies.

Read Also: Life Insurance for Dummies

Traditional vs Modified Whole Life Insurance

vsWhen traditional life insurance is compared to the modified one, you will find out that they have some similarities and differences at the same.

Many people tend to confuse these two, and that is why you need to understand them clear to make sure that you do not get mixed up.

When looking at each case, you will find out that traditional whole life insurance is a type of policy that is designed to cover you indefinitely.

What this means is that once you have taken a policy, it will not run out as long as you are paying your premiums as expected.

In return, the policy will only mature in case of the death of the policyholder. In such a case, the insurance company will have to pay the death benefits to your beneficiaries.

Whenever you decide to take a traditional policy, you will be required to pay a fixed amount of premiums throughout the life of the policy. At the same time, you will benefit from an investment component, which is the cash value.

You have a chance to withdraw the benefits of your cash value.

On the other hand, for modified plan, several things are almost the same as the traditional ones. Modified one is designed to cover you for the rest of your life without running out at any specific time. However, the structure is a bit different.

For this type of policy, the premiums are modified. As a result, they do not remain constant.

The premiums will be lower during the first 5 or 10 years of the policy. After that, it will start rising towards the later years of the policy.  This type of policy also comes with a cash value.

Differences and Similarities Between the Two

Both traditional and modified policy is designed to cover you for the entire life. They do not have any expiration date until you die and as long as you are paying the premiums.

They also have a cash value benefit.

On the differences, a traditional policy will require you to pay the same amount of premiums for the rest of your life.

On the other side, the modified plan will allow you to pay low premiums during the first 5 or 10 years; then, they will increase later in life.

Which one is better?

If you feel that you need flexibility in paying the premiums during the first few years of the policy, then you should go for a modified one.

When You Should Buy It?

when its right for youModified insurance is an excellent policy that is worth taking. However, you cannot go without talking about its merits and demerits.

As a result, you have to look at the policy very well and see through to understand why you should take it and why not.

As a result, we will look at circumstances under which you should buy this type of policy.

Low Payments at First

Premiums are one of the most crucial parts of any policy. The ability to pay your premiums will always remain an essential factor to consider.

In case you feel that you need an easy time paying your premiums, then you should buy the policy.

It is a type of policy that will allow you to pay low premiums at the beginning of the plan. It is one factor that comes to many as an advantage.

With many other bills to take care of, paying your premiums continuously and the same amount can be hectic. As a result, you may need to pay lower premiums during the first 5 to 10 years of the policy.

It is a move that will enable you to get into the system. You will be able to slowly plan out your income to take care of the premiums as they will increase towards the later years of your policy.

You Want a Full Coverage

If you do not want to keep worrying about your policy expiring and losing all the money you have spent paying for it, then this is your best option. It is not like a term policy that will end within a specific time.

For a modified policy, you are assured that you will be covered for the rest of your life. All you have to do is make sure that you are paying your premiums as required.

Future Expectations of Better Income

In some cases, we want certain things, but we do not have all the capacity to get them at the moment. It can be the same case for modified coverage.

What this means is that you want to have a life insurance cover, but you do not have much income at the moment. This type of coverage can work very well for you. This is because you will be able to pay lower premiums than other types of policies for the first few years.

As a result, you can be well-prepared as the premiums start to rise.

Cash Value

Here comes another reason why you should think of taking this option. You want cash value, and you cannot afford affordable to buy a traditional whole life policy? This is your chance.

Although the cash value will grow slowly due to the low premiums at first, you will still gain your cash value.

All you have to do is make sure that you are paying your premiums as required. And that at the end of 5 or 10 years you will have accumulated enough cash value before premiums start to increase.

When You Should Not Buy It?

when you don't buy itThere are times when you should not buy modified life insurance. Knowing when not to buy such a plan, it is a vital thing. It enables you to be able to make the right decisions and how-when to make them.

Here are scenarios in which you should not buy it.

You Do Not Want Uneven Premiums

If you are the type of person who would prefer to pay the same amount of premiums throughout the life insurance period, then do not go for this type of policy.

It is a policy that comes with low premiums at the beginning, and they start increasing in the future. For many people, this can be a challenge.

In many cases, you do not know about the future. You do not know what will be happening in the future when the premiums start increasing.

As a result, the best option to work with is where you are able to pay your premiums at the same level all through.

You may currently have a source of income, and that may change in the future. You may be unemployed, and you do not want to have difficulties paying the premiums.

Not Interested in a Complex Program

Modified insurance is a type of policy that is way more complex than a traditional whole life cover.

Yes. That is the reality.

The whole policy comes with uneven arrangements. You do not have a fixed period in which the premiums may be low. It is just between 5 and 10 years.

At the same time, your lifestyle and future events may not allow you to deal with specific changes comfortably.

Remember that there may be inflation in the next ten years when you will be required to pay more. It is also complex in the fact that adjusting yourself to take care of the increasing premiums can be a challenge altogether.

Need for Quick Cash Value Growth

The cash value can be a major concern to many when taking whole life insurance. If you are taking the policy as a form of investment and you are looking forward to quick cash value build-up, then this is not the best option.

Since you will be paying low premiums during the first few years of your policy, the cash value will be growing slowly.

Old Age

Age can also be a reason why you should not take it. However, note that it is not always the case. This depends on your strength, income, and lifestyle.

Look at it like this. When you are aging, the energy to work reduces. You have few sources of income. You do not want to have your premiums increasing at this period of life. It is still suitable for the elderly over 80 years.

Maximum Coverage

Maximum coverage refers to the maximum amount of money an insurance company is willing to offer you for a policy.

Many companies set different levels of coverage, which are determined by the amount of premiums you are willing to pay. However, insurance companies will have the maximum amount they are willing to offer for your plan.

In this case, many companies will have maximum coverage of $500,000. This does not mean that all companies will offer the same amount. Many companies do not provide a very high maximum coverage amount for the modified policy.

This is due to the fact that you will be paying low premiums during the first few years of the plan. As a result, this can make it difficult for a policyholder to pay the right, matching premiums. And they do not want the premiums to be too high when they start increasing.

It is also crucial to understand that the higher the coverage, the higher the amount of premiums you will be required to pay.

Is There Any Minimum?

If there is a maximum coverage for this type of insurance cover, then it is easy to agree there should be a minimum.

Yes. There is a minimum.

What would happen if there was no minimum insurance coverage? People would take unrealistically low covers that would be meaningless.

Insurance companies set minimum coverage figures to make sure that people are not taking useless covers. It will ensure that whenever you receive a cover, you are going for something that will offer you better and useful benefits upon death.

The lower the minimum coverage, the lower the amount of premiums you will be required to pay. But it also means that you will expect to receive very low death benefits at the end.

Different companies will operate with different minimum coverage figures. As a result, it makes it difficult for you to come up with the exact figure for the minimum coverage.

How Much Coverage Do You Need?

how much do you need

How much coverage you need is a crucial factor to think about when looking for a policy. It all depends on your interests. How much benefit do you want to get at the end of the plan?

When deciding about your coverage, you have to think about how much money you want as the death benefits.

You also have to consider your ability to pay the premiums before you decide the coverage to take.

The second factor that plays a significant role is the cash value. The higher the coverage, the higher the cash value. This is because when you are paying higher premiums your cash value will be growing faster as compared to paying lower premiums.

This scenario is real irrespective that you will be paying low premiums during the first 5 to 10 years.

Many insurance companies will provide you with a list of various options you can go for. It will be upon you to choose wisely based on your desires and abilities. Consider the beneficiaries that you have and how much you want to leave for them.

In case you have a huge debt commitment that you need to take care of when you die, it is also important to consider it when selecting your coverage.

Why is Age Important?

Age is a crucial factor for many types of insurance policies. It is a factor that will affect both you and the insurance company.

All insurance companies will consider age before covering their clients. This is because insurance companies consider age as a key factor in terms of risks attached to a client. The older you are, the higher the risks of dying. In fact, all types of insurance are determined by your age.

This is because age comes with many uncertainties that can be a huge risk. As a result, the older you are, the more of a risk you are to an insurance company. Due to this, insurance companies tend to raise the premium requirements for older people.

It is also vital to consider your age when you are taking a policy since it will affect you in the future.

Are you up for that? Will your age allow you to pay higher premiums later in life?

Consider your ability to pay higher premiums in the future. You are aging, and that means that your strength is reducing, you may no longer be employed, earnings may decrease with age. Will it be good for you to pay higher premiums when your age is a challenge for you?

Remember that it will be difficult to adjust to higher premiums at your older age. You may also not have someone to help you take care of the premiums.

As a result, it is important to consider your current age when taking this type of policy as well as the future to make sure that you can deal with the obligations smoothly.

Avoiding Medical Exams

All insurance companies will require you to have a medical exam. And the reality is that it can be challenging for many insurance applicants. In some cases, it can be a reason why you get.

However, the main question is. Is there something you can do about medical exams? Can you avoid them?

When taking a modified policy, there is no way of avoiding a medical exam.

However, you can work with an alternative type of policy in which you will not be required to take a medical exam. No medical exam life insurance is the way to go.

Many insurance companies offer this type of policy. They are policies designed to cover you without requiring any medical exam. Which means it is a guarantee that you will be accepted for the policy.

The advantage is that you do not have to undergo the medical exam. No one has to know about your health conditions.

However, it comes with its drawbacks. The biggest one being that you have to be ready for higher premium rates than other types of insurance covers. This is because you are considered a higher risk client as compared to others.

It doesn’t matter if you are as young as 40 years. Since you are not undergoing a medical exam, an insurer cannot estimate the risks attached to your health that may lead to death.

Different insurance companies will have different rates for the same person. Make sure that you compare several of them before making a decision.

Final Thoughts

A modified whole life insurance offers flexible payment terms and cash value. Due to this, it can be a great choice for seniors who are looking to build solid financial security without a difficult commitment financially.

In addition, the cash value is tax-deferred and policyholders can borrow money from the cash value without any tax charges.

So, does this sound like the best insurance policy for you?

Please leave your comments and let us know your thoughts.

Linda Chavez

I'm a burial & senior life insurance expert, independent agent, Founder & CEO of Seniors Life Insurance Finder. I have been working in this sector since 2004 and established my own company in 2014. I have a team of seven members, and we are trying hard to share the knowledge we've gathered. We know how difficult often it is to find an affordable policy. Hence, we are doing our best to help you.