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You may think that you can’t afford whole life insurance right now because of the expensive premiums that come with it. But a modified whole life insurance policy makes whole life affordable by offering a lower premium for the first few years.
Modified life insurance is a whole life insurance policy that allows you to pay lower premiums for the first few years — typically three to five years, but sometimes as many as 10 — then you pay slightly higher premiums for the remaining life of the policy.
Similar to any other whole life policy, you sign up for the coverage you want, stipulating the death benefit that’s paid to your heirs when you die, as well as the savings amount or cash value.
Once the term of your lower premium expires, your premium is modified to a higher level, which you pay for the rest of your life.
The years of lower premiums can make a modified life insurance policy great if you know your bills will decrease or your income will increase in the future. For example, if you’re paying for a child’s education for the next few years, or you’re on a career track with a salary increase, you could expect to have more budgeting room in the future.
Age can also be a factor. If you’re almost at an age where your premiums would be too high to afford and you want to lock in the lower premium before you could afford it, modified life might be a better choice than a traditional policy.
As with whole life insurance, the best candidates are people who don’t mind the higher premiums and want an investment tool. Modified life lets you start a policy with cheaper premiums than a standard whole life policy.
Since the future can be unpredictable, an unexpected expense or income decrease could make your modified policy unaffordable. And depending on how long you live, you could end up paying more than you would have with a traditional whole life policy.
Modified life insurance has a few benefits and drawbacks.
If a modified policy isn’t for you, consider these other whole life insurance options:
A modified life insurance policy can be a great way to start investing in long-lasting life insurance that you couldn’t otherwise afford. But if you’re concerned about the increased premiums, later on, compare your other insurance options to find a better fit.
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