What Is Graded Death Benefit? Definition

Why it matters

Graded plans are common in final expense and guaranteed issue policies for people with serious health problems. A typical wait is two or three years, but it varies by carrier and state. Accidental death is usually covered in full from day one. Families should know the wait before they buy, so they are not surprised by a smaller payout. Agents must explain the schedule clearly.

Source: naic.org

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Related terms

Modified Death Benefit: A modified death benefit limits the payout during an early period, often the first two or three years, if the insured dies of natural causes. After the period ends, the full face amount is paid.
Return of Premium (Graded): Return of premium in a graded plan means the carrier refunds the premiums paid, often with interest, instead of the full death benefit if the insured dies of natural causes during the waiting period.
Guaranteed Issue Life Insurance: Guaranteed issue life insurance is coverage that accepts applicants without health questions or a medical exam. Approval is guaranteed within the age limits, but the face amount is small and a waiting period usually applies.
Final Expense Insurance: Final expense insurance is a small whole life policy designed to pay for funeral costs, burial or cremation, and related end-of-life bills. Face amounts are modest, and it is often sold to seniors without a medical exam.
Death Benefit: A death benefit is the money a life insurance carrier pays to the beneficiary when the insured dies. It is usually paid as a lump sum and is generally income tax free to the beneficiary.

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